US borrowing crisis 'days away' from danger, says World Bank head

 

Jim Yong Kim: "We are now five days away from a very dangerous moment"

The president of the World Bank, Jim Yong Kim, has warned that the United States is just "days away from a very dangerous moment" because of the government's borrowing crisis.

He urged US policymakers to reach a deal to raise the government's debt ceiling before Thursday's deadline.

The US Treasury will start to run short of funds if no agreement is reached for it to borrow on financial markets.

Mr Kim warned this could be a "disastrous event" for the world.

"The closer we get to the deadline the greater the impact will be for the developing world.

"Inaction could result in interest rates rising, confidence falling and growth slowing," said Mr Kim, speaking at the World Bank's annual meeting in Washington.

Start Quote

There are three examples in US history that come close to default, with the most recent occurring in 1979”

End Quote

"If this comes to pass it could be a disastrous event for the developing world and that will in turn greatly hurt the developed economies as well," he added.

'Uneasy'

If the US does run short of cash, this could cause it to default on its debts, a development which would be likely to have a severe effect on financial markets around the world.

The BBC's Andrew Walker said that finance ministers from other countries think the US probably won't default, but they are uneasy and want the crisis resolved very soon.

Republicans and Democrats failed to come to an agreement on Saturday, but Senator Dick Durbin, a Democrat, said the aim was to reach a deal on extending the debt limit before markets reopen on Monday.

The White House rejected a deal for a short-term increase to the borrowing limit.

"It wouldn't be wise, as some suggest, to just kick the debt ceiling can down the road for a couple of months, and flirt with a first-ever intentional default right in the middle of the holiday shopping season," said President Barack Obama.

Shutdown

The US government has been in partial shutdown since Congress missed a 1 October deadline to pass a budget, with politicians being unable to agree funding for current spending.

This has resulted in hundreds of thousands of federal employees being sent home and government offices closing.

Arizona Governor Jan Brewer announces the reopening of the Grand Canyon National Park

Republicans refused to approve the new budget unless President Obama agreed to delay or eliminate the funding of the healthcare reform law of 2010.

US Treasury Secretary Jack Lew has estimated that each week the government is shut down, 0.25% is shaved off economic growth, which was already expected to be a sluggish this quarter.

Debt burden

Mr Lew has also has warned that letting talks over the debt ceiling go down to the wire "could be very dangerous".

The current debt limit of $16.699 trillion was reached in May.

Start Quote

It would ripple through the world economy in a way that you couldn't possibly understand”

End Quote Jamie Dimon Chief executive, JP Morgan

Since then the US Treasury has been using what are called extraordinary measures to keep paying the bills, but those measures run out on 17 October.

Every week, the Treasury also has to refinance $100bn worth of debt in the form of US government bonds known as treasuries.

The US also has to pay interest on its huge debt burden.

An inability to pay that interest, or pay back debt if required, would put the US into default.

On Saturday, Jamie Dimon, boss of the American bank JP Morgan said the possible repercussions did not bear thinking about.

"You don't want to know [what would happen]," he said.

"It would ripple through the world economy in a way that you couldn't possibly understand."

 

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +8

    Comment number 851.

    This is what the rest of the world gets for tying their economic livelihood to America's economic activities and well-being. American politicians behave as badly as many other politicians around the world. If the rest of the world is tired of "being held ransom" then it's time for the rest of the world to cut the apron strings & develop individual policies that promote economic independence.

  • rate this
    +22

    Comment number 602.

    The fact that so many people around the world are worried about this demonstrates how tied in we all are to world economics. The US government is holding the entire world to ransom over petty political issues.

    It's like a child smashing his toys so his younger brother can't have them either. It's pathetic that grown men do these things.

  • rate this
    +2

    Comment number 530.

    I think they should miss the deadline and then after that see how they can deal with a huge impact it will create. Let all the world see how stupid the US goverment really is (as well as all governments) they only thinking about their own pockets. I wouldnt be surprised if some of them have some bets on not reaching the deadline.

  • rate this
    +4

    Comment number 484.

    This could be potentially catastrophic.Seeing as the West only narrowly avoided complete financial meltdown in 2008 its not as if we are in the best of economic health.It really could end up being world depression as opposed to recession.

    China and Japan must be getting nervous if the US default if they are owed the most...

    Unless the USA has a cunning plan...

  • rate this
    +2

    Comment number 426.

    Bang! goes any chance of me finding a new job here in Europe, When money flow in US starts getting tight, the first thing US companies will do is start letting go overseas employees followed by shutting off overseas investment's & Aid

 

Comments 5 of 9

 

More Business stories

RSS

BBC Business Live

  1.  
    HORRIBLE HISTORY 12:45:
    Monty Python, Spanish Inquisition sketch

    Merlin Entertainments was concerned that its Dungeon brand would not work in the US, which lacks a "medieval horrible history". No need to worry! "We found that US cities .... have still got the same background of torture, disease and gratuitous violence that most of their European counterparts have," Merlin's chief executive told Reuters.

     
  2.  
    12:42: Via Blog Louise Cooper, CooperCity financial blog

    blogs: Draghi [ECB president Mario Draghi] is trying to push on a piece of string. The TLTRO [new bond buying scheme] was his way to force banks to lend to businesses and households. Well it hasn't worked. The periphery will still be starved of credit - the lifeblood of an economy. This suggests that Mr Draghi's plan has been somewhat of a failure so far.

     
  3.  
    CAR TAX SPAT 12:28:
    A car tax disc

    The RAC claims getting rid of the tax disc, which has been around since 1921, on 1 October, will lead to £167m more in annual tax evasion. From October motorists will no longer have to display a tax disc in their car windscreen. The government argues the tax disc isn't needed anymore as there is an online register, which is checked by officials using vehicle licence plate recognition technology. It also doesn't think the RAC's figures stack up.

     
  4.  
    MERLIN SHARES HIGHER 12:11:
    Children enjoy construction toys by Lego

    Merlin Entertainments says its "Dungeon" parks, which take visitors on a gruesome journey through plagues and punishments of the past, could become a global money-spinner after the success of a new US venue. The company, which owns Legoland and Madame Tussauds reported like-for-like sales growth of 6.7% for the three quarters to 6 September. That sent shares higher by 2.2% to 348p. Merlin said in July it was in talks to open new Legoland parks in China and the US.

     
  5.  
    MORTGAGE LENDING DIP 11:58:
    A group of For Sale signs on a London street

    The amount of money advanced to borrowers by UK mortgage lenders stood at £18.6bn in August, the Council of Mortgage Lenders (CML) has said today. That's down 5% on the July figure. But given August is one of the quietest months for property market activity it's perhaps not a huge surprise. Meanwhile, the lending figure is a full 13% higher than August last year. That said, the CML, which represents 95% of mortgage lenders in the UK, predicts a "gentle slowing" in the housing market from now on.

     
  6.  
    LUGGAGE SURCHARGES 11:44:
    Heathrow, Terminal 5

    Airlines in Europe can charge passengers an extra fee for checking in luggage, according to a ruling by Europe's highest court. In Spain it's illegal to impose luggage surcharges, but the European judges found that rule violates European law. Luggage charges are an important source of revenue for low cost carriers like Ryanair and Easyjet.

     
  7.  
    GOLD PRICE 11:26:
    Gold bars stacked on top of one another

    The price of gold has hit an eight month low of $1,236 an ounce. Traders said the price was reacting to comments from the chair of the US Federal Reserve Janet Yellen who indicated interest rates would start rising next year. That boosted the dollar, which depressed gold prices.

     
  8.  
    MANUFACTURING OUTPUT 11:12:
    A welder fabricates anchor bolts for roads and bridges

    UK manufacturers had a mixed month in September, with production continuing to rise steadily but order books deteriorating. So says the latest Confederation of British Industry Industrial Trends Survey. The survey of 488 UK manufacturers shows output remained "solid" in the last quarter. But firms saw total orders fall below "normal" levels, and export orders worsened significantly, They are now at their weakest since January 2013, the CBI adds.

     
  9.  
    PHONES 4U RESCUE 10:54:

    We might hear more this afternoon about the future of Phones 4U. The administrators of the failed firm are holding a conference call for the company's creditors at 15:00. Those creditors, or bondholders, have offered to take a loss on their holdings to help the business survive.

     
  10.  
    FLAGGING EUROPE? 10:40:
    EURO FLAGS

    European banks have borrowed 82.6bn euros (£65.2bn) under a new scheme by the European Central Bank to boost lending across the eurozone. That is much less than the 150bn euros forecasted and raises several questions. Do banks have an appetite for this financing? And should the ECB go for full blown quantitative easing, which means buying government debt?

     
  11.  
    SONY SHARES 10:25:
    Sony phones

    Sony shares plunged more than 10% in Tokyo. On Wednesday it warned of even deeper losses this year due to weakness at its mobile phone business. It also scrapped its dividend for the first time since Sony listed shares in 1958. Until yesterday investors had been feeling more optimistic about Sony's prospects, shares were up 25% over just six weeks.

     
  12.  
    RETAIL SALES 10:15:
    petrol pump

    A bit more on retail sales here from the ONS. It says average store prices fell 1.2% in August compared with the same month a year ago. That's the biggest fall in five years. Prices in petrol stations are down 5%, which was the main contributing factor. Meanwhile, prices in food stores only fell by 0.1% but that's the first fall recorded since December 2004. The fall is the direct result of the supermarket price wars, the ONS adds.

     
  13.  
    BEST BEFORE 10:04: BBC Radio 4

    Solveiga Pakstaite, from Brunel University has invented a new food label that could potentially replace "best before" descriptions on food packaging. She has just won the James Dyson UK design student award. Ms Pakstaite has designed a "bio reactive" food label, which can track the actual condition of the food within the packaging. She's in talks with one or two companies about the new labelling system, she tells Today.

     
  14.  
    HEADLINES
    • French Connection shares plunge on results
    • Alibaba to price shares after US market close
    • Phones 4U bondholders seek rescue deal
     
  15.  
    GOOGLE ROW 09:54:

    "Phew!! What a scorcher!! Murdoch accuses Google of eating his hamster!" That is Google's response to an accusation from News Corp that Google abuses its dominance in the internet search business. For a more considered response, Eric Schmidt wrote this letter to the Financial Times last week.

     
  16.  
    RETAIL SALES 09:45:
    woman with hoover

    Sales of electrical appliances were a big contributor to the retail sales figures in August, the Office for National Statistics says. Appliance sellers told the ONS, that sales of high-powered vacuum cleaners rose markedly as consumers sought to beat a ban imposed on them as part of EU energy saving regulations, which came into force at the end of August.

     
  17.  
    RETAIL SALES Breaking News
    Shoppers leave a Tesco store

    Retail sales volumes in August were 3.9% higher than the same month a year earlier, official figures show. That's a rise of 0.4% compared with July.

     
  18.  
    ZALANDO SHARE SALE 09:19:
    Zalando website

    The hoopla surrounding the Alibaba share sale may be drowning out another internet firm raising money. Late on Wednesday Zalando, Europe's biggest online fashion retailer, priced its shares in a range of 18 to 22.5 euros . The firm, based in Berlin, aims to raise up to 633m euros (£500m). Zalando was formed in 2008 when it began selling shoes.

     
  19.  
    PLUS-SIZE FASHION 09:01: Radio 5 live
    Evans show, London Fashion week

    "Consumers are getting bigger," says Maria Malone expert in fashion buying and merchandising at Manchester Metropolitan University. More retailers are offering bigger clothing and Evans had a plus-size fashion show at London fashion week (pictured). On Radio 5 live Ms Malone quotes research from Mintel, which found in 2008 the market was worth £3.2bn and by 2015 it forecasts that it will be worth £6bn.

     
  20.  
    FRENCH CONNECTION 08:50:

    French Connection shares have plunged 13%. Earlier the retailer said it remains "cautious" about the second half of the year and is "dependent" on the Christmas trading period. On the plus side, the company cut its half-year loss to £3.9m, from £6.1m in the previous year.

     
  21.  
    MARKET UPDATE 08:26:

    European markets have opened slightly higher, following gains for US shares and Asian markets overnight. Investors have been encouraged by comments from the chair of the US Federal Reserve, Janet Yellen, who said US interest rates would remain low for a while longer. The FTSE 100 is up a touch at 6781.

     
  22.  
    TOSHIBA REVAMP 08:20:
    Toshiba building, Tokyo

    Japan's Toshiba is moving away from selling computers to consumers to focus on business customers. The reorganisation of its business will result in 900 job losses. The revamp will result in a cut to operating profit of 45bn yen (£250m). It says the consumer market for computers is "volatile and over-dependent on sales' scale and volume".

     
  23.  
    GOOGLE ROW 08:05: BBC Radio 4
    The Google logo

    Is Rupert Murdoch's accusation that Google is a "platform for piracy" timed to coincide with an European investigation into the search engine giant? Rory Cellan-Jones tells the Today programme big media owners such as Mr Murdoch may "sense an opportunity" to cause mischief after the European Commission, which had concluded its investigation into Google, reopened it under pressure from Germany and France.

     
  24.  
    BRIT IN BRUSSELS 07:55: BBC Radio 4

    "There is a real sense of scepticism," over the appointment of Lord Hill as the European Commissioner in charge of Financial Services across the European Union, BBC European correspondent Chris Morris tells the Today programme. Green MEP Philippe Lamberts tells the BBC: "When I first heard about this I thought it was a joke". He thinks Lord Hill will face a difficult confirmation hearing on 1 October. Lord Hill needs to prove he is "not just the personal envoy of David Cameron", another MEP tells the BBC.

     
  25.  
    PHONES 4U RESCUE 07:44: BBC Radio 4

    Bondholders of Phones 4U are offering to take losses on their debt, in return for saving the firm. To do that they will have to negotiate with the suppliers of network services like EE and Vodafone. This "calls the bluff of the networks" says BBC Business Editor Kamal Ahmed. It will test whether the networks really want to sell through independent retailers like Phones 4U, Kamal says.

     
  26.  
    EASYJET DIVIDEND 07:32:
    Easyjet

    Easyjet is raising its dividend from a third of profit to 40% of profit for its financial year, which runs to the end of September this year. It has also confirmed an option to buy 27 of the Airbus A320 aircraft. It expects to take delivery of the jets between 2015 and 2018.

     
  27.  
    Via Twitter Adam Parsons Business Correspondent

    tweets: "French Connection shares were 335p a decade ago. Now 70p"

     
  28.  
    FRENCH CONNECTION 07:21:
    A French Connection store front

    French Connection has reported a half year pre-tax loss of £3.9m, compared with a pre-tax loss of £6.1m for the same period a year earlier. Revenue for the period was £84m, down from £89m a year earlier. The company says it is remains "cautious" about the second half of the year and reminds investors it is "dependent" on the Christmas trading period.

     
  29.  
    ALIBABA SHARE SALE 07:09: BBC Radio 4

    Alibaba prices its shares after the close of trading in the US later today. Steven Hartley practice leader at Ovum Telecoms tells the Today programme the tech firm has about 80% of the e-commerce retail market in China. But he adds "only about half of the Chinese population has access to the internet" so the potential of a company with this kind of hold on the Chinese market is huge and that's why it is attracting so much investor attention.

     
  30.  
    'HAIRY HIPSTERS' 06:58:
    Hipster olympics Berlin

    Wake Up to Money speaks to some "hairy hipsters" in London's trendy Shoreditch. One claims to spend "as little as possible" on grooming. Martin Wood, from IRI says there has been a decline in the sales of razor blades. Those who do shave are doing it less frequently, perhaps because they work from home and the expense is an issue too, Mr Wood says.

     
  31.  
    END OF QE 06:52: BBC Radio 4

    Andrew Wilson of Goldman Sachs Asset Management tells the Today programme Wednesdays US Federal Reserve announcement on interest rates was "largely as expected". It reiterated that it will raise interest rates once a "considerable time" has passed after its stimulus programme ends in October. "Essentially it looks like 1.5% interest rates by the end of next year," he says.

     
  32.  
    ALIBABA SHARE SALE 06:30: Radio 5 live

    "You are getting a taste of the future," says Gordon Barber, from the centre for digital business at the University of Salford on Wake Up to Money. He browses the Alibaba website in his spare time. He says it can give an insight into where high street technology products will be in one or two years time.

     
  33.  
    ALIBABA SHARE SALE 06:16: Radio 5 live

    "Investors are punch drunk with new issues," says Justin Urquhart Stewart, co-founder and senior partner of Seven Investment Management on Wake Up to Money. He says that recent shares sales have been "overpriced" and "oversold". He adds investors want to wait until shares settle down before investing in firms like Alibaba.

     
  34.  
    ALIBABA SHARE SALE 06:10: Radio 5 live
    Alibaba HQ

    The BBC's Ali Moore in Singapore explains the extent of Alibaba on Wake Up to Money. It owns China's biggest online shopping site. It has an online payment system. It owns 35% of a department store chain and it wants a banking licence. But she says the firm does not face massive competition in its home market, so it's not clear how it will do outside China. Its shares are expected to be priced after the US markets close on Thursday.

     
  35.  
    PHONES 4U RESCUE 06:02: Radio 5 live
    Phones 4U store

    Bondholders "were extremely angry over what happened," says Justin Urquhart Stewart, co-founder of Seven Investment Management Wake Up to Money. He's referring to the collapse of Phones 4U. Its private equity owners took more than £200m out of the firm by loading it with debt. Now those holders of debt are offering to take a loss to keep the business going.

     
  36.  
    06:01: Matthew West Business Reporter

    Morning folks. As always feel free to get in touch either on email bizlivepage@bbc.co.uk or on twitter @bbcbusiness.

     
  37.  
    06:00: Ben Morris Business Reporter

    A group of Phones 4U creditors are offering a deal to help revive the firm, and find out why you should care about Alibaba. Stay with the Business live page.

     

Features

From BBC Capital

Programmes

  • A person taking a photo of fireworks on a smartphoneClick Watch

    A look at the latest gadgets which could make it easier to take the perfect night-time picture

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.