IMF: US Debt Threatens Global Recovery

The International Monetary Fund (IMF) has warned the US to raise the limit on its debt soon or risk causing a "severe shock" to the fragile global economy.

The US Treasury has already hit its legal debt ceiling of \$14.3tn but politicians have failed to agree on increasing the limit.

"The federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets," the IMF said in its annual report on US economic policy.

The "unsustainable" level of US federal debt could also result in soaring interest rates and a downgrading of the country's credit rating, the organisation warned.

"These risks would have significant global repercussions, given the central role of US Treasury bonds in world financial markets," it added.

But the US President has insisted Republicans and Democrats can resolve their differences and face the country's debt problem together.

"One of the most important and urgent things we can do for the economy is something that both parties are working on right now and that's reducing our nation's deficit," Barack Obama said.

"As of last week, both parties had identified more than \$1tn worth of spending cuts already," he added.

Meanwhile, a leading economist has told Sky News that America's debt is high by any standards, but that the key to dealing with its spiralling debt problem is to focus on growth.

"The challenge in America is not only the need to get growth but to manage expectations," Standard Chartered's chief economist Gerard Lyons told Jeff Randall Live.

"If the Americans had actually built expectations on the fact that growth would be pretty sluggish then I don't think people and indeed the markets would be as shocked by what they have heard," he said.