海角大神

If the US were to default on its debt or have its bonds downgraded, the ripple effect would reach the global economy.

That鈥檚 the view of Christine Lagarde, the new managing director of the International Monetary Fund (IMF), who emphasized that the US should resolve the debt-ceiling issue quickly.

鈥淔rankly, to have a default, to have a serious downgrading of the United States鈥� signature would be a very, very serious event,鈥� said Ms. Lagarde at a meeting of the Council on Foreign Relations in New York. 鈥淣ot for the United States alone, but for the global economy at large because the consequences would be far-reaching. It would not stop at the frontiers of the United States; it would go beyond.鈥�

If the US were to default on the interest on its bonds, private economists say, it would cause banks around the world to write down the value of their enormous holdings of US Treasury securities. At the same time, stock markets around the world would probably plunge.

鈥淭hat would have a devastating effect,鈥� says Jay Bryson, international economist at Wells Fargo Economics Group in Charlotte, N.C.

If banks were to write down the value of their bonds, they would have to raise capital quickly or shutter their doors, Mr. Bryson says. 鈥淭heir capital base would shrink, and when that happens, they are less likely to make loans,鈥� he says. 鈥淚t would spill over very quickly to the real economy.鈥�

However, not all economists envision a doomsday-like scenario.

Nariman Behravesh, chief economist for IHS Global Insight in Lexington, Mass., says the Federal Reserve would step in to stabilize the financial markets.

鈥淚 suspect the Fed already has contingency plans for this problem,鈥� Mr. Behravesh says. 鈥淚t does not necessarily have to be a disaster.鈥�

The US Treasury would continue to pay the interest on US debt, he says. However, he estimates that the government is spending 40 percent more than it鈥檚 taking in. This means the government would have to stop paying other bills coming due.

鈥淲e would have to slash paying for Medicare, issuing Social Security checks. That would kill the economy,鈥� Behravesh predicts.

On Wall Street on Tuesday, investors continued to shy away from the stock market. The Dow Jones Industrial Average was off about 85 points, and the price of gold ticked up by some $7 an ounce to about $1,619.

Even if the debt ceiling is raised and spending cut by the Aug. 2 deadline, an economic spillover could still happen.

Although Lagarde didn鈥檛 comment on any of the plans under discussion in Washington, she did say that IMF studies have found a short-term negative economic impact from shrinking budget deficits. The current Republican and Democratic proposals have the budget deficits shrinking by $1 trillion to $4 trillion over 10 years.

鈥淭o be precise, our studies show that a reduction of one percentage point on the deficit entails in many instances 0.5 percent off the growth number,鈥� she enumerated. That鈥檚 why, she said, the IMF recommends any budget cutting take place at a time when the economy is growing.

Bahravesh, for one, says Congress should postpone major spending reductions for at three to four years. 鈥淚t鈥檚 a bit of a balancing act. We think you want to backload it versus starting it next year,鈥� he says.

He points to Britain as an example of an economy that is suffering from large cuts in government spending. On Tuesday, Britain reported that second-quarter gross domestic product rose by only 0.2 percent compared with the prior quarter. 鈥淭he UK鈥檚 economy is dead in the water,鈥� he says. 鈥淭hat鈥檚 not what the US wants.鈥�

Once an economy adjusts to a smaller government footprint, the IHS economist says, the private sector might become more robust. The payoff for the economy takes five to 10 years, he says.

If the rating agencies downgrade US bonds, it might have a negative impact on some money-market mutual funds and insurance companies whose standards require them to invest in the highest-rated bonds. But it might not be disastrous, Bahravesh says.

鈥淲hat are the alternatives?鈥� he asks. 鈥淲here do money-market funds and insurance companies go? Do they buy Chinese bonds or German bonds? There are no good alternatives.鈥�