IMF warns of threat of US political crisis escalating to default

The IMF yesterday warned the US against letting the government shutdown spill into a debt default later this month as President Obama and Congressional leaders failed to find a solution to the political stalemate.

With the shutdown set to enter a fourth day, Mr Obama maintained the pressure on Republicans in the House of Representatives to end the deadlock over a budget. He wants them to lift their conditional approval of continued government funding on the president's healthcare law being delayed or repealed.

In a speech at a business in a Washington suburb, he evoked the memory of the 2008 financial crisis, telling workers this crisis was due to “a reckless Republican shutdown in Washington”.

The US Treasury warned that if the political dispute prevented an increase in the borrowing limit when the government runs out of cash on October 17th, the ensuing debt default could result in a recession that would be “comparable to or worse” than the economic slump that followed the 2008 crisis.

IMF managing director Christine Lagarde warned that a failure to raise the debt ceiling would present a far worse threat to the global economy than the shutdown, which has put more than 700,000 federal employers on unpaid leave and closed national parks, museums and government offices.

Ms Lagarde said it was “mission critical” that the US agreed a higher debt ceiling to allow the government to pay its bills.

She urged Congress to repair the country's finances for the long term.

Softening position
In what appeared to be a softening in the Republicans' position, House Speaker John Boehner, the party's highest ranking member in the lower chamber, told party colleagues in a private meeting that he was determined to prevent a default and was willing to pass a measure with Democratic support.

US media, quoting multiple Republican sources, said that Mr Boehner was willing to waive a rule that would force him to seek majority support within his own party to pass an increase in the debt limit.

Mr Obama expressed exasperation that far-right conservatives among House Republicans had forced the government shutdown over a law that extended health insurance to millions.

While acknowledging that political gridlock in Washington was not new, he warned in an interview late on Wednesday that “this time I think Wall Street should be concerned”.