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IMF chief Lagarde warns US default could trigger world recession

Speaking on US television, the head of the IMF has said a default by the US government on its debt could tip the world into recession. The head of the World Bank issued a similar warning.

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Shutdown prompts outside concern, action

Head of the International Monetary Fund (IMF), Christine Lagarde appeared for an interview on NBC's Meet the Press on Sunday. She said that the US must 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 US signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession," she said.

Without an agreement to lift the debt ceiling, the US Treasury would run out of authority to borrow money on Thursday, and could begin defaulting on its obligations for the first time in history.

Senate Sunday session

After Democratic and Republican leaders in the Senate held direct talks for the first time in weeks on Saturday, there were signs of progress on Sunday in bringing the stalemate over the US budget to an end. The Senate convened a rare Sunday session to try and break the budgetary impasse, but there was no indication of an immediate solution.

Senator Majority Leader Harry Reid described talks with the Republican leader Mitch McConnell "substantive," and expressed general optimism that an agreement was within reach.

Senate Minority Republican leader Mitch McConnell issued a statement on Sunday 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 on Monday, even though it is the Columbus Day federal holiday.

There was some confidence on Capitol Hill over the weekend. Republican Senator Bob Corker said he was confident an agreement could be reached. "This is something that's wreaking havoc around the world and will affect economic growth, and I do hope that over the next week we'll reach a conclusion and I think we will," he said.

IMF-World Bank fall meeting

But President of the World Bank, Jim Yong Kim, also expressed his concern that the US was just "days away from a very dangerous moment." Speaking at the World Bank's annual meeting in Washington, he said: "The closer we get to the deadline, the greater the impact will be for the developing world."

"Inaction could result in interest rates rising, confidence falling and growth slowing," Kim added.

jm/kms (Reuters, AFP)

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