IMF: The First-ever US Default Will Damage Global Economy with No Corner Spared, Protracted Talks to Ignite International Financial Market Crisis

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said on Tuesday she hopes the markets don’t have to wait until the last minute that the US debt ceiling issue is resolved.

U.S. President Joe Biden and House Speaker Kevin McCarthy met at the White House on Monday for more than an hour, ultimately failed to reach a solution.

The U.S. faces the risk of defaulting in as soon as nine days. U.S. Treasury Secretary Janet Yellen said in her third letter to Congress in three weeks on Monday that if Congress does not act to raise the $31.4 trillion debt ceiling, it is "highly likely" that the Treasury Department will fail to fulfill all U.S. government payment obligations in early June, as early as June 1, which would trigger the first default in U.S. history.

Georgieva said at a news conference in London that a U.S. default would hurt the U.S. and global economies, and this would be a strong impetus for negotiators to reach a deal.

 She said that if the U.S. defaulted on its debt, it would be catastrophic for the U.S. economy and the global economy, though she also said she believed the common sense and civic sense of U.S. leaders would lead to a deal.

Protracted talks could spark financial market turmoil

Even if a deal can be reached at the last minute, the protracted negotiations will cause turmoil in global financial markets.

Yellen warned: "We know from past debt-ceiling impasses that waited until the last minute to suspend or raise the debt ceiling that business and consumer confidence could be significantly hurt, short-term borrowing costs for taxpayers might increase, and U.S. credit rating could be negatively impacted."

Looking back in 2011, the then U.S. President Barack Obama and House Republicans reached an agreement on the debt ceiling at the last minute, narrowly avoiding a catastrophe, but the resulting tension triggered violent fluctuations in the global capital market, which directly led to S&P downgrading the U.S. Sovereign Credit Rating.

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