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US bankruptcy would have ‘very serious consequences’: IMF


The International Monetary Fund on Thursday warned of dire consequences if the US defaults on its debt, ahead of a fast-approaching deadline for the country to raise or suspend its debt ceiling.

“Our assessment is that there would be very serious consequences, not only for the US, but also for the global economy, should there be a US debt service,” IMF communications director Julie Kozack told reporters, urging all parties to resolve the issue as soon as possible.

Separately, Treasury Secretary Janet Yellen said that “in the absence of a default, breaching the debt limit could also have serious economic costs”. Yellen also warned of an “economic and financial catastrophe” if the US is unable to meet its financial obligations.

“In my view — and that of economists across the board — a default on US debt would create economic and financial catastrophe,” Yellen said.

“In the absence of a default, being on the brink of debt can also have serious economic costs,” she added as a three-day meeting of finance ministers and central bank chiefs began in the city of Niigata.

President Joe Biden has also threatened to call off his trip to Asia, including attending next weekend’s Group of Seven summit in person, if the deepening stalemate is not quickly resolved.

The cost of insuring exposure to US government debt rose to new heights on Wednesday, as President Joe Biden and top lawmakers were mired in talks about raising the $31.4 trillion federal borrowing limit.

Spreads on US one-year credit default swaps (CDS) — market-based measures of default risk — widened to 172 basis points, a record high, according to data from S&P Global Market Intelligence, up from a close of 163 on Tuesday.

The cost of insuring US debt against default for five years was 73 basis points, up from 72 basis points on Tuesday, the highest level since 2009.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.