June 29, 2011 5:57 pm
IMF warns US of global debt ‘shock’
By James Politi in Washington
The International Monetary Fund has warned of a “severe shock” to global financial markets if the US does not move quickly to increase its borrowing authority, adding pressure on Congress and the White House to clinch a deal on fiscal policy.
In its annual report on US economic policy, the IMF cited “unfavourable fiscal outcomes” as one of the main dangers to the country’s economic outlook.
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“These could take the form of a sudden increase in interest rates and/or a sovereign downgrade if an agreement on consolidation does not materialise or the debt ceiling is not raised soon enough,” the IMF said.
It added: “These risks would also have significant global repercussions, given the central role of US Treasury bonds in world financial markets.”
The US Treasury has said that if Congress does not raise the debt limit – at present at $14,300bn – the US will run out of cash to pay its obligations and could default as early as August 2.