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US Default Would Have Severe Global Consequences: IMF


US Default Would Have Severe Global Consequences: IMF

The International Monetary Fund (IMF) has warned of severe consequences that the United States (US) may encounter if its debts are defaulted as the country approaches a deadline to either increase its borrowing limit or suspend it. 

The IMF’s communications director, Julie Kozack, emphasised that there would be dire repercussions, not only for the US but also for the global economy if there is a default, urging all parties to urgently resolve the issue. 

Republicans and Democrats remain divided on the debt ceiling issue, with Republicans insisting that President Joe Biden’s administration must agree to significant budget cuts in exchange for support to lift the limit before the country runs out of cash to pay for its existing bills. Democrats, on the other hand, are asking for a “clean” increase on the borrowing limit, asserting that Republicans are using extreme tactics to advance their own political agenda before the “X-date,” when the US will be unable to meet its financial obligations. 

Higher borrowing costs, broader global instability, and economic repercussions are only some of the events to occur in the event of a US default, according to the IMF. Kozack stressed that the world has experienced numerous shocks in the past few years, so it is crucial to avoid severe consequences. 

Historically, the lifting of the debt ceiling has been seen as a routine matter since it involves raising funds to pay for spending commitments already made by Congress. However, with the Republicans’ right-wing insisting on tackling the ballooning US debt, the Biden administration’s refusal to negotiate on the debt ceiling has resulted in a standoff just weeks before the US risks running out of money to pay its obligations. 

President Biden met with Republican leader Kevin McCarthy in a failed attempt to find common ground on the issue. Both leaders reiterated their positions after the talks. While Biden stated that “default is not an option,” McCarthy said that he “didn’t see any new movement” in the meeting, attended by the Senate majority and minority leaders and the minority leader of the House. 

Discussions will pick up again on Friday as both of Congress attempt to resolve the issue before the X-date, which the Treasury has warned could be as early as the first of June. It remains to be seen if a resolution can be reached before the deadline, and the world watches with bated breath as the US debt default could have severe repercussions for the global economy. 

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