A debt crisis this way comes, IMF warns

The International Monetary Fund yesterday issued a forecast that was even bleaker than its April outlook, Reuters reports.

The IMF, in its regular assessment of global economic prospects, said that bigger threats to growth had emerged since its previous report in April, citing the euro zone debt crisis and signs of overheating in emerging market economies.

The global lender forecast that U.S. gross domestic product would grow an anemic 2.5 percent this year and 2.7 percent in 2012. In its forecast just two months ago, it had expected 2.8 percent and 2.9 percent growth, respectively.

The outlook elsewhere was mixed. The IMF said it was slightly more optimistic about the euro area’s growth prospects this year, but a lack of political leadership in dealing with that crisis and the budget showdown in the United States could create major financial volatility in coming months.

The director of the IMF’s monetary and capital markets department called it “playing with fire” to postpone important, budget-related decisions, and the Reuters article specifically mentions the upcoming fight over whether to raise the debt ceiling. Without doubt, that fight is important — it desperately needs to net spending cuts and caps (and will only be a game of “chicken” if politicians on both sides of the aisle refuse to see that) — but it’s hard not to connect the IMF’s most recent warning to a certain preventable, lamentable “dereliction of duty.”

It has now been 779 days since Democrats have passed a budget — even though the law requires them to do just that. What if they had passed a budget that changed the debt trajectory of our country by April 15? What if they had passed a budget last year? Would the IMF have needed to issue so unnerving a prophecy? Would the debt limit debate loom with such heavy significance? A sound budget could have mitigated concerns, introduced greater certainty into the marketplace, prompted businesses to create jobs … The current situation, replete with unwelcome words from the IMF, could have been completely avoided.

Now, CQ reports, the latest iteration of Senate Budget Committee Chairman Kent Conrad’s (D-ND) secret budget is on the table. But Conrad seems unlikely to move definitively before Vice President Joe Biden’s deficit reduction talks yield a plan — because, Conrad says, “it wouldn’t make a whole lot of sense to go to markup before we see what they do, because they may very well need a budget resolution to enact what they want to do.” But a secret budget is barely better than no budget at all. After all, secrecy does little to assuage uncertainty.

Thanks to Democrats’ delays and the Biden talks’ debt-ceiling-debate target, the budget discussion will be rolled into the debt limit debate — and the IMF will continue to warn against “playing with fire.” But it didn’t have to be this way.