IMF chief: U.S. dance with the debt limit is ‘very, very concerning’

The chief of the International Monetary Fund says the U.S. government’s stalemate over spending and its debt limit is “very, very concerning” and could roll back economic progress around the world.

Christine Lagarde, who took over the financial watchdog-and-rescue organization in 2011, said global finance ministers assembled for meetings in Washington last week feeling like Japan had finally turned the corner and that economies in the U.S. and Europe were on the upswing.

“And then they found out that the debt ceiling was the issue,” she said Sunday on NBC’s “Meet the Press.” “They found out that the government had shut down and that there was no remedy in sight. So it really completely transformed the meeting in the last few days.”

Ms. Lagarde, a lawyer from France, added a global perspective to the standoff that has roiled Washington for weeks and befuddled overseas investors who typically view the U.S. as a paragon of financial rectitude.

Instead, Senate leaders are trying to forge a deal that would extend the federal debt limit and end a government shutdown about to enter its third week.

Lawmakers are increasingly optimistic about a deal, because the country is flirting with default on its debts if the standoff hurtles past Thursday, the Treasury-designated deadline to raise the debt ceiling.

“We’ll figure it out, and it will probably be a relatively short-term solution,” Sen. Rob Portman, Ohio Republican, said on NBC.

But weekend negotiations broke down after Republicans complained that Democrats were attempting to alter the so-called sequester cuts that were written into law after a similar standoff in 2011.

Republican lawmakers said their bids to roll back President Obama’s health care law may have been destined for failure, but Democrats should not try to rewrite laws, either.

Sen. Bob Corker, Tennessee Republican, said on “Fox News Sunday” that Democrats were “overreaching,” and that Congress needs to “act like adults.”

Republicans also said it would be irresponsible to raise the debt limit without doing anything to stem government spending, and some quarters within the GOP also think warnings of default have been overblown.

Rep. Jim Jordan, Ohio Republican, declined to tell Fox host Chris Wallace whether he thinks House Republicans would be willing to let the nation’s borrowing authority lapse.

“You should be asking [Senate Majority Leader] Harry Reid this and Barack Obama this,” he said.

The congressman said the country is spending more money than it has, so Republicans will not budge on established spending cuts in the sequester.

Ms. Lagarde, in her interview with NBC host David Gregory, agreed that entitlement spending will be a significant problem for the United States in the long run. But she threw cold water on claims that Thursday’s deadline to raise the debt limit is inconsequential.

“Creative accounting is not the solution,” she said, “and markets know that.

“If there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over, and we would be at risk of tipping yet again into a recession.”

The United States has to get serious about entitlement spending down the road, but slashing spending in the near-term could be counter productive, she said.

When it comes to the U.S. economy, she said, the IMF tends to say, “Hurry up, but slow down.”

“Hurry up because measures have to be taken now to deal with entitlements, as you suggested, because there is a level of entitlement coming up and big liabilities coming up as well in terms of interest payment,” she said. “But we say slow down because the point is not to contract the economy by slashing spending brutally now as recovery is picking up.”