Thursday, October 03, 2013

IMF Scared Congress May Cause Another Crash

International Monetary Fund Managing Director Christine Lagarde is warning Congress that the debt ceiling must be raised. Immediately.

“The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy,” Lagarde said in a speech in Washington to students at George Washington University. “So it is ‘mission-critical’ that this be resolved as soon as possible.”

The Treasury Department is worried that not raising the debt ceiling would cause an international credit freeze.

The United States has never defaulted on its obligations, and the U. S. dollar and Treasury securities are at the center of the international financial system. A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.

The last time there was an international credit freeze was when Lehman Brothers declared bankruptcy. The result was the worst economic crisis since the Great Depression. The TARP program was created to get money moving in the banking system again. Republicans in Congress may start another crash if they don't give President Barack Obama a clean CR bill to sign.

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