When you invite guests over, you probably straighten up the house to make a good impression.
This week, the nation’s capital is welcoming guests from all over the world. Thousands of finance ministers, central bankers, scholars and industry leaders are in Washington, D.C., for the annual meetings of the International Monetary Fund and the World Bank.
But instead of being impressed by the buffed-up home of the world’s superpower, the guests are finding a capital in disarray. The federal government is still partly shut down and Congress has not yet agreed to avoid a debt default.
The disorder is prompting a lot of criticism of the United States, and concerns about U.S. economic leadership in the world.
If Congress does not end its political crisis, “it will have financial consequences that will apply not just to this country, but across the globe, given the strong inter-connectedness between the various economies,” IMF chief Christine Lagarde said during a panel discussion on Thursday.
On Friday, even as they heard reports about U.S. lawmakers floating possible solutions and meeting at the White House, foreign officials remained worried and wary at the IMF gathering.
“It’s unfortunate, really, because the U.S. has a huge responsibility with the world economy,” said Rodrigo Valdes, an economist with a Brazilian investment bank. “Once you are so important, you cannot toy” with your role in the financial system, he warned.
Foreign officials say they count on U.S. economic strength to provide stability for global financial markets. Virtually all countries invest in Treasuries, and they need the U.S. dollar to serve as the world’s reserve currency to help smooth out international transactions.
A default would be extremely destabilizing to global markets, “given the very, very deep penetration of the Treasury bonds from the United States in all portfolios around the globe,” Lagarde said.
Finance ministers and economists recall that exactly five years ago, global financial markets were melting down because of a crisis involving U.S. mortgage debt. At that time, American homeowners started defaulting on their house payments, triggering panic and massive financial losses.
Now, with the global economy still struggling to get back on track, the United States is threatening global stability by raising the possibility of American taxpayers defaulting on their government debt.
Most economists say such an outcome likely would make the 2008 crisis seem mild.
Yi Gang, deputy governor of the People’s Bank of China, appeared on Thursday’s panel with Lagarde. He said bankers everywhere are observing how the world’s leading democracy handles its finances. “The market doesn’t like uncertainty, and we watch this drama very closely,” Gang said.
As for the role of elected lawmakers, “they should have the wisdom to solve this problem as soon as possible,” he added.
The IMF issued its global economic outlook this week and it showed economic activity slowing. The global growth forecast slipped to 2.9 percent for this year, down from an earlier prediction of 3.2 percent.
And for 2014, the growth forecast is now 3.6 percent, down from the previous forecast of 3.8 percent.
NPR’s Chris Arnold contributed to this report.