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Lagarde Sees Massive Disruption If Debt Ceiling Not Fixed

IMF Managing Director Christine Lagarde
International Monetary Fund Managing Director Christine Lagarde attends the IMF and World Bank Group Annual Meetings in Washington, D.C., on Oct. 12, 2013. Photographer: Andrew Harrer/Bloomberg

International Monetary Fund Managing Director Christine Lagarde said the congressional deadlock over the U.S. debt ceiling is threatening the U.S. and world economies and cautioned against “creative accounting” to avoid default.

“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,” Lagarde said in an interview with NBC’S “Meet the Press” program about the impact of not raising the borrowing limit. “And we would be at risk of tipping, yet again, into recession.”

Lagarde said the U.S. stalemate “transformed” the discussions of global finance officials gathered in Washington this weekend at the IMF annual meetings.

U.S. Senate leaders of both parties began negotiations to avert a default even as senators blocked legislation to prevent one and talks between the White House and House Republicans hit an impasse.

With a partial government shutdown in its 13th day and a lapse in borrowing authority four days away, the best prospects for a deal shifted from the House to the Senate, where Majority Leader Harry Reid and Minority Leader Mitch McConnell held their first negotiating session since the shutdown began Oct. 1.

The U.S. is the IMF’s largest shareholder with 17.7 percent of so-called quotas, which determine a country’s voting power and the amount a country can borrow from the fund. Japan is next largest with 6.56 percent of the quota, followed by Germany at 6.12 percent.

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