West News Wire: IMF managing director Kristalina Georgieva has criticised Washington’s prolonged debt-ceiling standoff between the Biden administration and leading Republicans, stating that a US default would have a substantial impact on the prosperity of the global economy.
Following the IMF’s Article IV consultation with US economic data on Friday, Georgieva stated at a news conference that “the US Treasury market is the anchor of stability for the global financial system.” The world economy, the ship we’re all traveling on, is in rough and, worse yet, unfamiliar waters when you pull the anchor.
Georgieva continued, “Right now, the most significant impact is anxiety around the world over something that should not have been a problem to begin with,” and that default would “inevitably” cause a slowdown in the US and worldwide economy. Additionally, she claimed that this would come as “shock upon shock upon shock” to financial institutions that are still recovering from the Covid-19 outbreak and vulnerabilities caused by Moscow’s military action in Ukraine.
For the majority of the past week, negotiations between representatives of the Biden administration and a group of Republican delegates led by House Speaker Kevin McCarthy have remained at a standstill.
Both parties have expressed hope for a resolution, which would avert a default early next month and prevent Washington from being able to make its bondholder obligations. This scenario, according to experts like Moody’s Analytics and the American Enterprise Institute, would be economically disastrous and would trigger a world financial catastrophe.
Janet Yellen, the secretary of the US Treasury, announced on Friday that she had revised the so-called “X-Date,” or the day by which the Treasury will run out of money to make its scheduled payments, from an earlier estimate of June 1 to June 5.
In the first week of June, the US Treasury must make payments totaling about $92 billion, which is more than the amount of funds anticipated to be available unless the US raises its debt ceiling. Republican negotiators are demanding concessions from the Biden administration, including imposing federal spending cuts and future restrictions on spending.
President Joe Biden insists on approving the raising of the debt ceiling with no strings attached, saying that the United States always pays its bills on time.
This impasse, though, is a vexing one for Georgieva and the International Monetary Fund. “It is frustrating for everyone to have a solvable problem that is in the hands of policymakers continuing to linger into the 12th hour,” she said.