IMF chief Lagarde warns against U.S. fiscal cliff

Christine Lagarde on signs of an improving U.S. economy
Christine Lagarde, managing director of the International Monetary Fund, spoke to Scott Pelley on how she can tell the U.S. is recovering from the great recession.
Paul Richards/AFP/Getty Images

(CBS News) WASHINGTON - Threats to the U.S. economy are coming from far beyond Washington -- they also come from across the Atlantic.

Christine Legarde, managing director of the International Monetary Fund and one of the most powerful women in the world economy, is the person to ask about how financial issues abroad play into the fiscal issues at home.

The IMF is essentially a massive bank set up after World War II to lend money to countries in financial trouble and help countries with international trade.

Lagarde was formerly a French finance minister. She took over the IMF last summer.

At her headquarters in Washington Monday, CBS News asked her why the world economy has been slowing for the last several months:

Christine Lagarde: You have several factors. I would name as the first one the global uncertainty, as to how and when the European crisis will be addressed and resolved. The second one is how and when the fiscal cliff and the debt ceiling will be addressed and what are the long-term anchoring factor for the economic policies developed in, say, the United States and Japan. Those are factors of uncertainty that really prevent people from making the investment decisions, the hiring decisions, the foreign direct investment decisions that would otherwise help growth and the world over.

Scott Pelley: If we cross the fiscal cliff, we go over the edge, do you think the United States would go back into recession?

Lagarde: If it was not addressed very shortly, yes.

Pelley: Why are you so certain of that?

Lagarde: Well, you just look at the numbers. That would entail a growth contraction of about 2 percent in a given year. So if you assume that the U.S. economy forecast growth next year is 2 percent, 2 percent minus 2 percent equals zero. You are pretty much at the recession stage, yeah.

Pelley: There are about 12-and-a-half million Americans who lost their jobs in the great recession, we have seen our economy in recession or stumbling along since late 2007 and a lot of Americans just want to know: When does this end?

Lagarde: Well, I would say there is good news lurking out there. In particular the fact that the housing market is picking up is in our view a clear sign the situation is improving. When you see that the financial institutions have been clearly strengthened, restructured and made a little bit safer and that the housing market is picking up, that's not bad.

"Not bad" but next week, the IMF is expected to announce it is lowering it's forecast for world growth to 3 percent this year.