IMF’s Lagarde Urges U.S. to Show Leadership in Budget Chaos

Politicians in Washington need to show leadership in resolving a political deadlock on the budget that risks damaging the country’s economy and the rest of the world, International Monetary Fund Managing Director Christine Lagarde said.

“Leadership has to be demonstrated in this city,” Lagarde said in an interview on Bloomberg Television with Tom Keene today. The budget chaos could “precipitate another crisis if it was to last longer.”

The U.S. government is in the 10th day of a partial shutdown and a week away from the day Treasury Secretary Jacob J. Lew has said his department will run out of measures to stay below the nation’s limit on borrowing. House Speaker John Boehner, an Ohio Republican, has rejected President Barack Obama’s call to pass a debt ceiling increase without policy conditions.

House Republican leaders are presenting their members with a proposal to raise the debt limit for six weeks without policy conditions, said a congressional aide familiar with the details. The move would lessen the risk of a U.S. default one week from a lapse in borrowing authority.

The IMF this week cut its global outlook for this year and next. Failure to raise the debt ceiling would damage a U.S. economy that’s showing “lots of good signs,” including in the housing market, Lagarde said. The IMF predicts the U.S. economy will grow 1.6 percent this year and 2.6 percent next year, helping drive global expansion at a time emerging markets slow.

Lew has said that so-called extraordinary measures -- the accounting moves he’s been using since May to stay below the $16.7 trillion debt limit -- will expire by Oct. 17, leaving him with about $30 billion on hand. Expenditures can be as high as $60 billion on some days, Lew has said.

“The U.S. has been a safe haven and that has been for a long time,” Lagarde said. “It shouldn’t be damaged as a result of what’s going on.”

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