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US borrowing crisis 'days away' from danger, says World Bank head | |
(about 1 hour later) | |
The president of the World Bank, Jim Yong Kim, has warned that the United States is just "days away from a very dangerous moment" because of the government's borrowing crisis. | The president of the World Bank, Jim Yong Kim, has warned that the United States is just "days away from a very dangerous moment" because of the government's borrowing crisis. |
He urged US policymakers to reach a deal to raise the government's debt ceiling before Thursday's deadline. | He urged US policymakers to reach a deal to raise the government's debt ceiling before Thursday's deadline. |
The US Treasury will start to run short of funds if no agreement is reached for it to borrow on financial markets. | The US Treasury will start to run short of funds if no agreement is reached for it to borrow on financial markets. |
Mr Kim warned this could be a "disastrous event" for the world. | Mr Kim warned this could be a "disastrous event" for the world. |
"The closer we get to the deadline the greater the impact will be for the developing world. | "The closer we get to the deadline the greater the impact will be for the developing world. |
"Inaction could result in interest rates rising, confidence falling and growth slowing," said Mr Kim, speaking at the World Bank's annual meeting in Washington. | "Inaction could result in interest rates rising, confidence falling and growth slowing," said Mr Kim, speaking at the World Bank's annual meeting in Washington. |
"If this comes to pass it could be a disastrous event for the developing world and that will in turn greatly hurt the developed economies as well," he added. | "If this comes to pass it could be a disastrous event for the developing world and that will in turn greatly hurt the developed economies as well," he added. |
'Uneasy' | 'Uneasy' |
If the US does run short of cash, this could cause it to default on its debts, a development which would be likely to have a severe effect on financial markets around the world. | If the US does run short of cash, this could cause it to default on its debts, a development which would be likely to have a severe effect on financial markets around the world. |
The BBC's Andrew Walker said that finance ministers from other countries think the US probably won't default, but they are uneasy and want the crisis resolved very soon. | The BBC's Andrew Walker said that finance ministers from other countries think the US probably won't default, but they are uneasy and want the crisis resolved very soon. |
Republicans and Democrats failed to come to an agreement on Saturday, but Senator Dick Durbin, a Democrat, said the aim was to reach a deal on extending the debt limit before markets reopen on Monday. | Republicans and Democrats failed to come to an agreement on Saturday, but Senator Dick Durbin, a Democrat, said the aim was to reach a deal on extending the debt limit before markets reopen on Monday. |
The White House rejected a deal for a short-term increase to the borrowing limit. | The White House rejected a deal for a short-term increase to the borrowing limit. |
"It wouldn't be wise, as some suggest, to just kick the debt ceiling can down the road for a couple of months, and flirt with a first-ever intentional default right in the middle of the holiday shopping season," said President Barack Obama. | "It wouldn't be wise, as some suggest, to just kick the debt ceiling can down the road for a couple of months, and flirt with a first-ever intentional default right in the middle of the holiday shopping season," said President Barack Obama. |
Shutdown | Shutdown |
The US government has been in partial shutdown since Congress missed a 1 October deadline to pass a budget, with politicians being unable to agree funding for current spending. | |
This has resulted in hundreds of thousands of federal employees being sent home and government offices closing. | This has resulted in hundreds of thousands of federal employees being sent home and government offices closing. |
Republicans refused to approve the new budget unless President Obama agreed to delay or eliminate the funding of the healthcare reform law of 2010. | Republicans refused to approve the new budget unless President Obama agreed to delay or eliminate the funding of the healthcare reform law of 2010. |
US Treasury Secretary Jack Lew has estimated that each week the government is shut down, 0.25% is shaved off economic growth, which was already expected to be a sluggish this quarter. | |
Debt burden | |
Mr Lew has also has warned that letting talks over the debt ceiling go down to the wire "could be very dangerous". | |
The current debt limit of $16.699 trillion was reached in May. | |
Since then the US Treasury has been using what are called extraordinary measures to keep paying the bills, but those measures run out on 17 October. | |
Every week, the Treasury also has to refinance $100bn worth of debt in the form of US government bonds known as treasuries. | |
The US also has to pay interest on its huge debt burden. | |
An inability to pay that interest, or pay back debt if required, would put the US into default. | |
On Saturday, Jamie Dimon, boss of the American bank JP Morgan said the possible repercussions did not bear thinking about. | |
"You don't want to know [what would happen]," he said. | |
"It would ripple through the world economy in a way that you couldn't possibly understand." |