President Barack Obama has warned of the “catastrophic consequences” that would follow a failure to raise the US national debt ceiling as IMF chief Christine Lagarde highighted the risk of a “major world economic crisis".
The Democratic president, who spoke on Saturday following this week’s 11th-hour deal that avoided the so called “fiscal cliff” , said he will “not compromise” on insisting that Congress raises the federal government’s debt ceiling.
He warned Republicans against playing a “dangerous game” with the economy.
“If Congress refuses to give the United States the ability to pay its bills on time, the consequences for the entire global economy could be catastrophic,” he said.
“Our families and our businesses cannot afford that dangerous game again.”
International Monetary Fund chief Christine Lagarde said a failure to reach agreement on the debt limit and a solution to the European debt crisis would result in a “major world economic crisis".
After narrowly avoiding automatically triggering huge spending cuts and tax rises this week the fiscal cliff US politicians now have around two months to secure a deal to raise the debt ceiling.
The debt ceiling is a law that caps how much debt the federal government can hold and is posing a new threat to the world’s largest economy.
If no deal is reached, the US could default on its debt and trigger a fresh global financial crisis.
House Speaker John Boehner said that Republicans are pushing for “significant spending cuts” and reforms of expensive programs that provide pensions and health care services for the elderly.
While President Obama said he is willing to back spending cuts, he said the must be “balanced with more reforms to our tax code”.
“The wealthiest individuals and the biggest corporations shouldn’t be able to take advantage of loopholes and deductions that aren’t available to most Americans.”
Experts have warned that failure to raise the debt ceiling could have even more serious consequences for the world economy than the fiscal cliff crisis.
Last year, political brinkmanship over the debt limit led to the downgrade of the US national credit rating and sparked jitters in global stock markets.