"Shares and oil prices rose strongly on Thursday amid hopes that policymakers in Washington were buckling under the global pressure for them to settle their differences and prevent a US debt default.
The International Monetary Fund and the Organisation for Economic Cooperation and Development both issued sharply worded warnings to Republicans and Democrats amid signs that America's Asian creditors were becoming alarmed at the potential consequences of the impasse.
Reports in Washington that the Republicans would agree to a six-week extension of the debt ceiling from next week's 17 October deadline led to a 200-point rise in the Dow Jones average in early trading. Brent crude was up by $2 a barrel and the FTSE rose by 92 points as the Republican leader in the House of Representatives John Boehner said it was time for meaningful talks with president Barack Obama.
Speculation about a deal emerged after Jack Lew, the US Treasury secretary said there would be chaos if the US defaulted – a message rammed home by the IMF's Christine Lagarde and the OECD's secretary general Angel Gurría.
Lagarde, the IMF's managing director, said there would be very dangerous consequences for the US Economy and very dangerous consequences outside the US economy if the default was not prevented.
She distanced herself from the infighting in Washington, noting: "The IMF does not make recommendations about how, politically, this can be resolved. We don't take a political view. We just look at the economic consequences.
"When it affects the largest economy in the world, we are bound not only to look at the immediate domestic consequences but at what happens elsewhere, so that we can have a dialogue with our members to help them prepare. I hope we will be able to look back in a few weeks and say what a waste of time that was. But we have to look at the risks no matter how unlikely they are to materialise."
Lagarde said there were two channels through which a debt default in the US would spread to the rest of the world. "One would be the trade channel, caused by a reduction in economic activity in the US from the third quarter onwards. The second would be the financial channel – the result of uncertainty and material issues. We are likely to see volatility, uncertainty and consequences for the rest of the world."
Source: The Guardian
Source: The Guardian
