The chief of the International Monetary Fund said Sunday the United States’ stalemate over spending and its debt limit is “very, very concerning” and has rocked the organization’s annual meeting in Washington.
Christine Lagarde said things had been looking up around the world. Speaking with hundreds of finance ministers around the world, they believed that Japan had turned the corner, and that economies in the United States and Europe were on the upswing.
“And then they found out that the debt ceiling was the issue,” she told NBC’s Meet the Press. “They found out that the government had shut down and that there was no remedy in sight. So it really completely transformed the meeting in the last few days.”
Ms. Lagarde also threw cold water on claims by some GOP lawmakers that Thursday’s deadline to raise the debt limit is not consequential, since it might not lead to automatic default on the country’s debts.
She said “creative accounting is not the solution, and markets know that.”
“One thing we’re certain around the table, it was that if there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over, and we would be at risk of tipping yet again into a recession,” Ms. Lagarde said.
She said the United States has to get serious about entitlement spending down the road, but that slashing spending in the near-term could be counterproductive.
When it comes to the U.S. economy, the IMF says, “Hurry up, but slow down,” she told NBC.
“Hurry up because measures have to be taken now to deal with entitlements, as you suggested, because there is a level of entitlement coming up and big liabilities coming up as well in terms of interest payment,” she said. “But we say slow down because the point is not to contract the economy by slashing spending brutally now as recovery is picking up.”
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