The Managing Director of
International Monetary Fund (IMF), Christine Lagarde, has warned of “massive disruption” to the global economy if the United States debt ceiling, which will be reached tomorrow, was not lifted. That is when the U.S. Treasury runs out of authority to borrow money.
On Sunday, the US Senate negotiations to bring a fiscal crisis to an end showed signs of progress, but there were no guarantees the federal government shutdown was about to end or that a historic debt default would be avoided.
According to Lagarde, “We would be at risk of tipping, yet again, into recession.”
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, which has been 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, 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 on Monday, 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.
With time running out to reach a deal, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1 percent on Monday while the safe-haven Japanese yen rose. The Tokyo stock exchange was shut for a public holiday.
U.S. stock index futures fell 0.7 percent to indicate a weaker opening on Wall Street.
U.S. stocks had risen strongly ahead of the weekend on hopes a deal to raise the $16.7 trillion federal borrowing limit was near. Failure to raise the debt ceiling would leave the world’s biggest economy unable to pay its bills in the coming weeks.
Banks and money market funds are already shunning some Treasuries normally used as collateral for short-term loans, a sign that a deadlock over the debt ceiling could disrupt a key source of day-to-day funding in the financial system.
On Saturday, House Speaker John Boehner informed his rank-and-file that negotiations with the White House had collapsed.
What started as a Republican effort to fight Obama’s signature healthcare reform law by depriving it of funds and blocking a budget agreement has morphed into a stalemate on other issues.
“I don’t even understand, at this moment, what this is about,” said Democratic Senator Claire McCaskill.
Senator Dick Durbin, the second-ranking Democrat, boiled the fight down to a couple of seemingly easy matters to resolve: the size of the increase in Treasury’s borrowing authority and how much the government would be allowed to spend in a temporary funding bill after money ran out with the September 30 fiscal year-end.
China’s state news agency Xinhua called for an end to the “pernicious impasse” and said it was time for a “de-Americanised world”. China is among the largest foreign holders of US debt.
“The United States is the world’s largest economy. We hope they can shoulder their responsibilities,” said Hua Chunying, a foreign ministry spokeswoman, told a regular briefing on Monday.