Lagarde warns US of recession and massive disruption

Monday 14 October 2013 07.51
US government shutdown enters third week
US government shutdown enters third week

US Senate negotiations to bring a fiscal crisis to an end showed signs of progress yesterday.

But there were no guarantees the federal government shutdown was about to end or that a historic debt default would be avoided.

IMF chief Christine Lagarde has warned of "massive disruption" to the global economy if the US debt ceiling, which will be reached on Thursday, was not lifted.

That is when the US Treasury runs out of authority to borrow money.

"We would be at risk of tipping, yet again, into recession," Lagarde said in an interview broadcast on US television.

Friday's optimism that a deal might be forged over the weekend vanished on Saturday and the talks moved from the acrimony of the House of Representatives to the Senate.

Senate Majority Leader Harry Reid and Republican leader Mitch McConnell held talks that Reid later called "substantive". Reid did not provide details, but his remarks gave some hope that Congress soon might pass legislation to fund the government - in shutdown mode since October 1 - and raise its borrowing authority.

"I'm optimistic about the prospects for a positive conclusion to the issues before this country today," Reid said before closing the Senate for the day.

Earlier yesterday, McConnell issued a statement calling on Democrats to accept a bipartisan plan that would end the government shutdown and raise the borrowing authority.

Both the Senate and House are scheduled to be in session today, even though it is the Columbus Day federal holiday.

However, whatever deal the Senate might reach will still have to return for approval by the House, where the Republican majority faces strong pressure from its vocal conservative flank not to make concessions to President Barack Obama and his Democratic Party.

In 2011, during the last major battle over the debt limit, a deal was announced the night of July 31 of that year. By August 1, the House of Representatives had passed a bill; the next day the Senate went along and hours later, Obama had signed it into law.

Even so, the 2011 fight went down to the wire and this year's battle seems to be shaping up no differently. If a deal is reached, lawmakers could be voting on it as late as Wednesday or Thursday.