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 |  Subject: World Bank head Jim Yong Kim warns US is ‘five days away from a very dangerous moment’ because of the government’s borrowing crisis  Sun Oct 13, 2013 2:11 pm | |
| World Bank head Jim Yong Kim warns US is ‘five days away from a very dangerous moment’ because of the government’s borrowing crisis
- World Bank chief Jim Yong Kim warned on Saturday that the United States was headed toward peril as politicians failed again to resolve the shutdown standoff
- The US and world economies face higher interest rates, falling confidence and slower growth if the US Congress does not raise the $16.7 trillion borrowing cap, Kim said
By JAMES NYEPUBLISHED: 07:55 EST, 13 October 2013 | UPDATED: 09:28 EST, 13 October 2013The president of the World Bank on Saturday warned the United States was just 'days away' from causing a global economic disaster unless politicians come up with a plan to raise the nation's debt limit and avoid default.
'We're now five days away from a very dangerous moment. I urge U.S. policymakers to quickly come to a resolution before they reach the debt ceiling deadline...Inaction could result in interest rates rising, confidence falling and growth slowing,' World Bank President Jim Yong Kim said in a briefing following a meeting of the bank's Development Committee.
'If this comes to pass, it could be a disastrous event for the developing world, and that will in turn greatly hurt developed economies as well,' he said. Disastrous: World Bank chief Jim Yong Kim warned Saturday that the United States was headed toward peril as politicians failed again to resolve a standoff over the budgetThe alarming remarks from the Korean-American came after three days of talks revolving around meetings of the 188-nation International Monetary Fund and its sister lending agency, the World Bank, top officials pressed the U.S. to resolve the political impasse over the debt ceiling.
The standoff has blocked approval of legislation to increase the government's borrowing limit before a fast-approaching Thursday deadline.
U.S. Treasury Secretary Jacob Lew has warned that he will exhaust his borrowing authority Thursday and the government will face the prospect of defaulting on its debt unless Congress raises the $16.7 trillion borrowing limit. More...
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'We know there are problems,' Tharman Shanmugaratnam, the head of the IMF's policy-steering committee and Singapore's finance minister, told a news conference at the end of the IMF meeting.'We know there are near-term risks, the most obvious one being what's going on in the U.S. with regard to the fiscal deficit.'
But one of the big near-term concerns, the expectation that the U.S. Federal Reserve will start scaling back its massive stimulus program for the economy, is actually pointing to a positive development, Tharman said.
 Talks: Jim Yong Kim, (left), president, World Bank Group, and Christine Lagarde, International Monetary Fund (IMF) Managing Director talk before a meeting of the Development Committee during the World Bank/IMF Annual Meetings , in WashingtonIt means that the U.S. economy is strong enough to withstand a reduction of the stimulus.
IMF officials have been forecasting that the strengthening U.S. economy will be a main driver of the global economy in the coming year.
At the same time, developing country economies are slowing and their markets have been unsettled since May by anticipation that the Fed will soon begin tapering its $85-billion-a-month bond purchases, which poured cash into the economy to stimulate growth.
'The eventual normalization of monetary policy as economies recover in the West will be a net positive for the emerging economies,' Tharman said, meaning that the strength of the major economies will help carry the global economy forward.
Lew told finance ministers that the United States understands the role it plays as 'the anchor of the international financial system' and assured them the administration was doing all it could to reach a resolution on the debt. Stalemate: Speaker of the House John Boehner walks to his office after a meeting with fellow Republicans at the Capitol in Washington on SaturdayAn effort Saturday to pass a one-year extension of the borrowing limit failed to get sufficient votes. But in a more hopeful sign, negotiations began between Democratic and Republican Senate leaders to end the impasse.
Mario Draghi, head of the European Central Bank, was one of a number of officials who were guardedly confident that an eleventh-hour deal would be reached, as it has in similar standoffs in the past.
'I still think it is unthinkable that an agreement won't be found,' Draghi told reporters Saturday.
'If this situation were to last a long time, it would be very negative for the U.S. economy and the world economy and could certainly harm the recovery.'
But once Draghi moved beyond the U.S. impasse, he sounded upbeat about the prospects for a European recovery.
That in itself is a dramatic turn from the past three years, when global financial leaders were taken up with waves of crisis sweeping across the region and necessitating a series of international rescue loans. Business not as usual: President Barack Obama yesterday discussed challenges from the partial government shutdown small business ownersThe IMF called on emerging economies, which have been the drivers of the global economy in recent years, to undertake reforms that will help their economies better withstand the scaling back of monetary stimulus in the U.S. and other major economies.
When the stimulus money was flowing, emerging economies benefited from investments as investors were attracted by their relatively higher rates of interest vis-a-vis the United States and other major economies.
But many of those same countries that benefited from capital flows have been rocked since May, as the investment flows reversed and flowed back toward the U.S. as rates here began to rise.
Alexandre Tombini, the head Brazil's central bank, told the IMF steering committee that the worries about the U.S. and global economies might be overblown.
'A while ago there was an excess of exuberance and now perhaps an excess of pessimism,' he said. Negotiating: Senate Majority Leader Harry Reid of Nevada is surrounded by reporters as he leaves the Senate floor to meet with Senate Democrats regarding the government shutdown and debt ceiling Time is ticking: Republican Senator from Kentucky Mitch McConnell walks off the Senate floor after a vote on the motion to proceed on the Debt Limit BillThe stark warnings from the World Bank came the same day that House Speaker John Boehner today told fellow Republicans that his talks with President Barack Obama have stalled.
'The Senate needs to hold tough,' Representative Greg Walden said Boehner told House GOP lawmakers. 'The president now isn't negotiating with us.'
Obama rejected the speaker’s effort to lift the debt ceiling for six weeks and reopen government in exchange for a budget negotiating process.
Attention now turns to the Senate, where a bipartisan group of Senators are working on a separate plan to reopen the government. New plan: Republican Senator from Maine Susan Collins leaves a Republican meeting and heads to the Senate floor to vote on the motion to proceed on the Debt Limit BillWord of the negotiations between Senate Majority Leader Harry Reid, and the top Republican, Senator Mitch McConnell of Kentucky, emerged as the Senate, as expected, rejected a Democratic effort to raise the government's borrowing limit through next year.
Republicans objected because they want the extension to be accompanied by spending cuts.
The calendar is edging closer to the October 17 deadline to raise the federal debt ceiling. After that, administration officials have said the government will deplete its ability to borrow money, risking a first-time federal default that could jolt the world economy.
Read more: http://www.dailymail.co.uk/news/article-2457514/World-Bank-head-Jim-Yong-Kim-warns-US-5-days-away-dangerous-moment.html#ixzz2hdAL6EJ7
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