US should reach ‘credible’ plan to control debts

IMF chief Christine Lagarde, speaking on Saturday at an economic conference in Jackson Hole, Wyoming, said the United States should reach a “credible” plan to control government debts in the future, but push for stronger economic growth now.

If the economy stagnates, she said, plans to cut government spending in the future will lose credibility: “Who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged unemployment and social dissatisfaction?”

Her comments echoed those of Federal Reserve chairman Ben Bernanke, who on Friday urged Congress to do more to help the ailing US economy.

Lagarde also said that private investors or governments must replenish the capital of banks facing potential losses if ailing European countries cannot meet government debt payments.

She urged central banks around the world to keep interest rates low and consider “unconventional” steps if they are required to protect the fragile global recovery.

“The downside risks to the global economy are increasing,” Lagarde said. “Those risks have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed.”