IMF chief Christine Lagarde warns US of worldwide effects of looming fiscal cliff
International Monetary Fund (IMF) chief Christine Lagarde has warned the US that it has the potential to be its 'own worst enemy' over the fragile economic recovery.
He said that the failure to reach a comprehensive settlement over the fiscal cliff could see growth plummet to zero.
In straightforward comments over the impending fiscal cliff, Lagarde said that "if the US economy was to suffer the downside risk of not reaching a comprehensive deal, then growth would be zero".
According to the Guardian, she said that "the markets would react quickly, and the stock market would take a hit".
All the current signs of optimism over the economy that she identified, including falling unemployment, the housing sector bottoming out and reduced household debt, would be negated, the report said.
Speaking on CNN's State of the Nation, Lagarde predicted that the diverse landscape of the US economy "could be significantly improved or worsened by the fiscal cliff, fiscal deficit and the debt of the country that are three topics that can be addressed now in a comprehensive fashion."
"The real threat is here, with us, and that can be addressed," she added.
She said that the US 'is more exposed to its own difficulties and issues than elsewhere in the world because it is such a big player. We can be our own best friends or our own worst enemy.'
Lagarde said that the most important thing was for the warring factions to reach a comprehensive and balanced agreement that will work for the long term.
"Anything less would foment uncertainty that fuels doubt that prevents investors, entrepreneurs, households from making decisions because they don't know what tomorrow will be," she said.
"My view, personally, is that the best way to go forward is to have a balanced approach that takes into account both increasing the revenue, which means, you know, either raising taxes or creating new sources of revenue, and cutting spending," she added.