IMF head warns US debt crisis threatens world economy

IMF managing director Christine Lagarde says failure to raise the US debt ceiling would be a far worse threat to the global economy than the current shutdown. The shutdown is due to a budget standoff between President Barack Obama and Congress. But a worse problem looms: the US will run out of money if there is no agreement to raise the borrowing limit. Ms Lagarde's comments were echoed by the US Treasury. It says a debt default could lead to a financial crisis as bad as 2008 or worse. Mr Obama emphasised that gloomy message in a separate speech on Thursday. "As reckless as a government shutdown is, as many people as are being hurt by a government shutdown, an economic shutdown that results from default would be dramatically worse," he said. Continue reading the main story " Start Quote A default would be unprecedented and has the potential to be catastrophic" US Treasury report 'Mission critical' Mr Obama and Congressional leaders have been in political deadlock for days, which has had the effect of freezing non-essential US government functions. The US government closed non-essential operations on Tuesday after Congress failed to strike a deal on a new budget. The shutdown has left more than 700,000 employees on unpaid leave and closed national parks, tourist sites, government websites, office buildings, and more. For US economic watchers, a widely tracked indicator - the monthly US jobs report - has been delayed due to the shutdown, it was announced on Thursday. However, while this budget crisis rages in Washington DC, another, more dangerous, one looms in the coming weeks. On 17 October, the US government will run out of cash to pay its bills - unless the debt ceiling is raised. In a speech looking ahead to a decade of challenges for the world economy, Ms Lagarde said that the US government needed to fix its finances for the long term. She said it was "mission critical" that the US agrees a new debt ceiling. But as she has often said before, there should not be too much change in the short term because that could undermine the economic recovery.