Stocks struggle as US debt deal reaches impasse

27th July 2011

The International Monetary Fund has delivered a fresh warning to U.S. politicans to act 'immediately' to avert a disastrous default and rating downgrade that would cause havoc in the world's financial system, says the report.

Chief Christine Lagarde said 'the clock is ticking' towards the deadline of August 2, when the U.S debt ceiling must be raised or the country will start to run out of money.

The overriding view over the past few weeks has been that Republicans and Democrats will eventually agree a deal, reports the Financial Times (paywall). But the stalemate is starting to wear investors down, and if US lawmakers do not strike an agreement then one reason for traders' caution is the stark lack of consensus about what impact any technical default would have on financial markets and the economy, says the report.

Meanwhile Larry Elliott in the Guardian says: "The new head of the IMF, Christine Lagarde, has warned leaders in Europe and America that failure to tackle their debt crises will lead to fresh turmoil – and she's not the only one who's worried that we're heading for period at least as tumultuous as the 2008 panic."

He prepares to answer a series of questions later today from readers: Could the US really default? What would the knock-on effects be? Is there a better way to run the global economy? Are such bodies as the IMF fit for purpose? Can you really fireproof the global economy, or will periods of prosperity always result in a hangover?

Meanwhile, banking stocks suffered more losses today after a review of the sector by Goldman Sachs added to ongoing doubts about Greece's second debt bailout, reports This is Money.

Lloyds Banking Group led the fallers in the banking sector, dropping 1.7p to 43.5p, while Royal Bank of Scotland was off 1.3p at 34.9p and Barclays slipped 7.6p to 221.1p.

Mindful Money psychoanalyst Ken Eisold writes 'Why the U.S. won't default on its debt' here

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