October 4, 2013
Christine Lagarde, director of the International Monetary Fund (IMF) spoke at George Washington University (GWU) and asserted that if the US Congress does not come to an accord to raise the debt ceiling, this “mission critical” could destroy America.
Consequences would affect not only the US, but the global economy.
President Obama made similar comments earlier in the week: “As reckless as a government shutdown is, as many people as are being hurt by a government shutdown, an economic shutdown that results from default would be dramatically worse.”
At the World Bank (WB)/IMF Spring Meeting in Washington, Lagarde admonished American politicians to “settle their differences” before the country falls into “technical default”.
Lagarde said: “I have said many times before that the US needs to slow down and hurry up – by that I mean less fiscal adjustment today and more tomorrow. The world’s biggest economy needed to put its finances in order, but favored back-loaded measures to raise revenues and limit entitlement spending such as Medicare that did not jeopardize short-term growth. In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.”
For the sake of global markets, Lagarde urged the 188 members of the IMF to “complete the process of financial repair deemed necessary by the near-collapse of the global banking sector five years ago.”
Lagarde explained: “Under the old model, the financial sector took on outsized risk in pursuit of outsized rewards, causing outsized ruin – and precipitating the crisis we have been experiencing for the last five years. Since then, the international community has been struggling to build something better. This is not easy. It means throwing away old blueprints and designing new ones. It means dealing with the perverse incentives of financial firms and the inability or unwillingness of authorities to act. How is this transition doing? In the IMF’s assessment, it remains a case of ‘mission not yet accomplished’.”
Economists are warning about the debt ceiling as being the possible nail in the coffin of the US as the US Treasury is slated to “run out of cash” at the end of this month.
Sean Snaith, director of the Institute of Economic Competiveness (IEC) at the University of Central Florida commented: “Financial markets are already being impacted in the short-run as a result of heightened uncertainty. There would be greater long-term damage due to the spending cuts that would occur. The fiscal shock treatment of having to eliminate the deficit in one fell swoop would reduce GDP by more than 5% and cause a severe recession.”
In 2012, Jay Carney said: “I can say that this administration does not believe that the 14th Amendment gives the president the power to ignore the debt ceiling — period.”
Earlier this year, Obama invoked his self-proclaimed authority through threats of executive orders to resolve the debt ceiling issue with Congress. Obama said that “Social Security benefits and veterans’ checks will be delayed” should congressional leaders flounder and try to demand cuts in government spending in exchange for a resolution.
The President stated that “we are not a deadbeat nation” and “I will not have that conversation with a gun at the head of the American people.”
Obama said that there is “a small group in the House” that is attempting to “hijack the process” by which he can influence the Congress to follow his lead as Communist in Chief.
Stating that Congress was inferring with government spending and likening it to a “ransom in exchange for not crashing the economy”, Obama said at the end of his 1st term as president that “the full faith and credit of the United States of America is not a bargaining chip. And they better decide quickly because time is running short.”
Obama said that Congress “can act responsibly and pay its bills, or act irresponsibly.” He threatened to cut social programs such as payment of wages to our troops, social security being delayed, Medicare and Medicaid being cut.
Obama’s scheme is to punish the American public to force Congress to comply with his agendas.
At the press conference, when Obama was asked if he would invoke the 14th Amendment to order the debt ceiling raised without Congressional approval, Obama replied: “If Congress wants to have a debate about, maybe we shouldn’t go out to dinner next time . . . that’s fine. But, you don’t say, in order for me to control my appetites, I’m going to not pay the people who already provided me services, the people who lent me the money. That’s not showing any discipline; all that’s doing is not meeting your obligations. That’s not a credible way to run this government … we’ve got to stop lurching from crisis to crisis to crisis when there’s a clear path ahead of us.”
The 14th Amendment, Section 4, reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.”