US Treasury warns shutdown could spark global recession

Failure to raise the debt ceiling and allowing a default could spark a new recession even worse than the one Americans are still recovering from.

WASHINGTON // The US shutdown confrontation was leading headlong into a potentially more damaging clash over the nation’s borrowing authority, with Democrats and Republicans hardening their stances yesterday.

The partial government shutdown limped into its third day as the bigger problem of the debt limit rumbled ever closer, raising fears of a worst-possible outcome: a disastrous US default on its obligations that could send shockwaves across the world.

The US Treasury warned yesterday that failure to raise that debt ceiling could spark a new recession even worse than the one Americans are still recovering from.

Christine Lagarde, the International Monetary Fund chief, said it was imperative that the US not allow a default.

“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,” Ms Lagarde said.

Mr Obama laid the blame yesterday at the feet of the Republican leader of the House of Representatives. He cast John Boehner as a captive of a small band of conservative activists who want to extract concessions in exchange for passing the short term spending bill that would restart the government.

“The only thing preventing people from going back to work and basic research starting back up and farmers and small business owners getting their loans, the only thing that is preventing all that from happening right now, today, in the next five minutes is that Speaker John Boehner won’t even let the bill get a yes or no vote because he doesn’t want to anger the extremists in his party,” Mr Obama said.

* Associated Press