“Creative accounting is not the solution,” she said, “and markets know that.
“If there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over, and we would be at risk of tipping yet again into a recession.”
The United States has to get serious about entitlement spending down the road, but slashing spending in the near-term could be counter productive, she said.
When it comes to the U.S. economy, she said, the IMF tends to say, “Hurry up, but slow down.”
“Hurry up because measures have to be taken now to deal with entitlements, as you suggested, because there is a level of entitlement coming up and big liabilities coming up as well in terms of interest payment,” she said. “But we say slow down because the point is not to contract the economy by slashing spending brutally now as recovery is picking up.”