European Central Bank (ECB) President Christine Lagarde said it was unthinkable for the US to default on its fiscal obligations. Bloomberg writes. America has a debt problem hanging over its head.
Very negative effects
In an interview with CBS’ Face the Nation, Lagarde said she has “a lot of faith” in the United States. The head of the ECB said, “It cannot imagine that they would allow such a huge catastrophe by allowing the debt to increase further. So it does not imagine that the US will repay its debts. Bloomberg said.
“If this happens, it will have very negative consequences not only for this country – confidence will be shattered – but for the whole world,” Lagarde said. “I understand politics, I have been in politics myself. But there is a point where the highest interest of the nation must prevail.’
As America grapples with a potential debt crisis, Lagarde joins the fray. However, US President Joe Biden’s administration insists there will be no debt ceiling talks with House Speaker Kevin McCarthy.
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The U.S. Treasury Department is now taking extraordinary steps to prevent the debt ceiling from being breached, but the ceiling must be raised this summer to avoid debt. McCarthy is scheduled to deliver a speech at the New York Stock Exchange on Monday in which he is expected to address the impasse. Major US bankers and government officials such as Treasury Secretary Janet Yellen have been warning for months of pushing the US to the brink of collapse.
Lagarde issued her warning after attending the International Monetary Fund’s spring meetings in Washington. There, financial officials from around the world discuss the economic outlook in light of the challenges of inflation and high debt caused by the pandemic and war in Ukraine.
Lagarde, who faces pressure to raise interest rates further in the eurozone to fight inflation, says limited credit tightening will make the ECB’s job easier, echoing Yellen’s comments. “If they lend more and don’t manage their risk, that will reduce the work we need to do to reduce inflation,” Lagarde said. But if they cut more debt, it will put more pressure on growth. It’s a tricky balance.’
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