OECD: US threat to global recovery

Some experts warn the US economy has entered a “permanent slump”.

The uncertain future of monetary and central bank policies in the US poses a growing risk to a global economic recovery, the Organization for Economic Co-operation and Development (OECD) has warned.

It said a US debt default would create significant confusion in financial markets and could prove as catastrophic as the failure of Lehman Brothers in 2008.

The Paris-based advisory body warned in its twice-yearly Economic Outlook that “an outright default would have extremely severe effects,” adding that America’s debt ceiling should be abolished, and replaced by “a credible long-term budgetary consolidation plan with solid political support.”

“It would be likely to create large confusion and uncertainty in financial markets given the importance of U.S. government bond rates in pricing financial instruments worldwide and the widespread use of U.S. government bonds as collateral in many financial operations, and trigger a systemic flight to liquidity that could prove as catastrophic and costly as that in the day following the Lehman failure in 2008.”

US was on the verge of a debt default in October but its politicians reached at last-deal to end, temporarily, a dilemma over raising the debt ceiling after fierce bipartisan fight over the country’s budget. With the debt ceiling extended until February 7 and funding approved until January 15, talks are set to resume next year.

“Brinkmanship over fiscal policy in the United States remains a key risk and uncertainty,” Pier Carlo Padoan, the OECD’s chief economist has said.

The report shows the OECD’s focus of concern has shifted from the euro zone’s economic woes to the US.

While some people like the president of the Federal Reserve Bank of New York, William Dudley, say they are optimistic about the prospect of the US economic recovery some economists like Nobel Prize winner Paul Krugman argue that the US economy has entered a “permanent slump” as the result of the 2008-2009 financial crisis.

DB/DB

Source: Press TV