IMF chief says failure to raise US borrowing limit would cause 'real nasty' econ

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IMF chief says failure to raise US borrowing limit would cause 'real nasty'

economic fallout

By S. Rugaber, The Associated Press | The Canadian Press – 44

minutes ago

WASHINGTON - The International Monetary Fund's new chief foresees " real nasty

consequences " for the U.S. and global economies if the U.S. fails to raise its

borrowing limit.

Lagarde, the first woman to head the global lending institution, said

in an interview broadcast Sunday that it would cause interest rates to rise and

stock markets to fall. That would threaten an important IMF goal, which is

preserving stability in the world economy, she said.

The U.S. borrowing limit is $14.3 trillion. Obama administration officials say

the U.S. would begin to default without an agreement by Aug. 2.

" If you draw out the entire scenario of default, yes, of course, you have all of

that — interest hikes, stock markets taking a huge hit and real nasty

consequences, not just for the United States, but for the entire global economy,

because the U.S. is such a big player and matters so much for other countries, "

she said.

Lagarde, who took over as IMF managing director July 5, also addressed the

fallout stemming from the sexual assault charges filed against her predecessor,

Dominique Strauss-Kahn.

Strauss-Kahn resigned in May after he was accused of attacking a hotel maid in

New York City. He has denied the charges. New York prosecutors have admitted in

recent weeks that their case has weakened and that the accuser has lied about

many aspects of her background.

Lagarde, a former French finance minister, told ABC television's " This Week "

that the scandal caused " a very strange chemistry of frustration, irritation,

sometimes anger, sometimes very deep sadness " among the IMF's 2,500 employees.

Lagarde said she would be on her " best behaviour all the time. "

" When it comes to ethics and whatever I do, I always think to myself, would my

mother approve of that, " she said. " And if she did not, then there's something

wrong. "

President Barack Obama and congressional leaders from both parties planned to

meet Sunday evening at the White House to resume negotiations on a debt deal.

House Speaker Boehner said Saturday that the talks should aim to reduce the

deficit by about $2 trillion over 10 years. That's about half the size of a more

ambitious deal that Obama floated last week.

Republicans are insisting on deep spending cuts as a condition of voting in

favour of raising the debt ceiling. Obama and congressional Democrats are

insisting that more tax revenue should be part of the mix.

Lagarde did not address the European debt crisis or the IMF's recent aid to

Greece. On Friday, the IMF's board approved a $4.2 billion loan to Greece, the

latest installment of a bailout package intended to prevent the struggling

nation from defaulting on its debt.

The IMF has 187 member nations and lends money to countries with troubled

finances.