October 14, 2013 - 13:11 AMT
PanARMENIAN.Net - The head of the International Monetary Fund, Christine Lagarde, has warned that a U.S. default could tip the world into recession.
According to BBC News, in a U.S. TV interview she said a default would result in "massive disruption the world over".
The U.S. Treasury will start to run short of funds on Thursday, Oct 17, if no agreement is reached for it to raise its debt limit.
Democratic and Republican leaders in the Senate held direct talks for the first time in weeks on Saturday. But there is little sign of any breakthrough.
In an interview with ABC's Meet the Press Christine Lagarde said America must now raise the debt ceiling before Thursday's deadline.
"If there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession," she said.
The president of the World Bank, Jim Yong Kim, has also expressed his concern over the situation. He warned that the United States is just "days away from a very dangerous moment" because of the government's borrowing crisis.
Kim urged U.S. policymakers to reach a deal to raise the government's debt ceiling before Thursday's deadline.
"If this comes to pass it could be a disastrous event for the developing world and that will in turn greatly hurt the developed economies as well," he said.
The U.S. government has been in partial shutdown since Congress missed an Oct 1deadline to pass a budget, with politicians being unable to agree funding for current spending. This resulted in hundreds of thousands of federal employees being sent home and government offices closing.
Republicans refused to approve the new budget unless President Obama agreed to delay or eliminate the funding of the healthcare reform law of 2010.
U.S. Treasury Secretary Jack Lew has estimated that each week the government is shut down, 0.25% is shaved off economic growth, which was already expected to be a sluggish this quarter.
Lew has also has warned that letting talks over the debt ceiling go down to the wire "could be very dangerous".
The current debt limit of $16.699 trillion was reached in May.
Since then the U.S. Treasury has been using what are called extraordinary measures to keep paying the bills, but those measures run out on Oct 17.
Every week, the Treasury also has to refinance $100bn worth of debt in the form of U.S. government bonds known as treasuries. The U.S. also has to pay interest on its huge debt burden.
An inability to pay that interest, or pay back debt if required, would put the U.S. into default.
On Saturday, Jamie Dimon, boss of the American bank JP Morgan said the possible repercussions did not bear thinking about. "You don't want to know [what would happen]," he said. "It would ripple through the world economy in a way that you couldn't possibly understand."