Speaking in New York yesterday, the former French finance minister and now new IMF head, Christine Lagarde, warned that despite the positive response in the financial markets to bailouts, fresh turmoil could easily boil over if debt crises aren’t properly managed now. She also really wants the Republicans and Democrats in Washington to stop squabbling so much.

Lagarde was adamant that if Europe and the US don’t correctly manage the debt crisis moving forward, that turbulence could “easily resurface”.

She explained that this would naturally have a knock-on effect around the rest of the world and not just in America or the Eurozone:

I’m hopeful that the political courage shown by European leaders will soon be followed by bold fiscal action in the US. On the debt ceiling, the clock is ticking, and clearly the issue needs to be resolved immediately.

Indeed, an adverse fiscal shock in the United States could have serious spillovers on the rest of the world. But more fundamentally, a credible fiscal adjustment plan is needed sooner rather than later.

Her advice follows the weeks of debating going on between the Republicans and the Democrats.

The two American political forces have been arguing about measures of rectifying debt problems in the US, both for taxation measures and for agreeing on a total amount for their “debt ceiling”.

It wasn’t all doom and gloom and Lagarde spoke of what the long terms goals for the Eurozone and the US, and the world as a whole, should look like:

There is good news too: over the longer term, debt reduction can actually raise output by bringing down real interest rates and making room for tax cuts.

Obama has been doing his best to manage the situation and it has to be extremely tough for the guy having to face up and be a leader, but at the same time appeal to the general US population.

Increasingly, the White House has been updating its Flickr account with “positive” photographs of Obama to help boost his image.

Please enjoy this one of the Obama’s watching the Women’s World Cup soccer game between the US and Japan, from the Treaty Room office in the residence of the White House:

Nicley..

The US is supposed to reach a decision on final debt crisis management measures by the beginning of August.

[Sources: Mail&Guardian, Flickr]