Failure to find a solution to the U.S. debt-ceiling debate and matters in Europe will result in a “major world economic crisis,” International Monetary Fund Managing Director Christine Lagarde said in the Malawian capital, Lilongwe, Saturday, as Bloomberg informs, quoted by Mediafax. Without a resolution, there will be a crisis “due to the size of the economies of these two and their relationship with other countries in terms of trade and investment,” she told reporters. While the U.S. Congress approved a deal to avoid raising taxes on most Americans in the so-called fiscal cliff, policy makers need to agree on raising the USD 16.4 trillion debt ceiling, which it reached on Dec. 31, according to the Treasury Department. Extraordinary measures the agency is taking will be exhausted as early as mid-February, the Congressional Budget Office said. In Europe, growth has weakened as a crisis over debt levels among some member nations continued into a third year. The U.S. and European issues will affect developing countries including African nations, which also face risks from rising food prices, Lagarde said. On January first, both houses of the United States Congress approved a plan that will increase taxes for most Americans. But the agreement avoided much larger tax increases that were set to take effect this year. President Obama signed the bill into law last Wednesday. In a statement, quoted by Voice of America, he noted the importance of a balanced approach to the country’s fiscal problems. “Today’s agreement enshrines, I think, a principle into law that will remain in place as long as I am president: The deficit needs to be reduced in a way that’s balanced. Everyone pays their fair share. Everyone does their part. That’s how our economy works best. That’s how we grow.”Congress has given itself another two months to decide on how to cut the federal budget. More tax money and budget reductions are needed to cut the federal deficit. That deficit was over USD 1 trillion last year.The new law increases the tax rate on individuals with earnings of over USD 400,000 and on couples with earnings of over USD 450,000. All working Americans will have some kind of tax increase. This is because the share of Social Security taxes paid by employees will return to 2010 levels, an increase from last year of two percent. But the largest part of the tax increase will affect those with a lot of investment income and those with very high wages. Taxes on investment gains and dividends, payments from some kinds of securities, will increase. Also, the top income tax rate will go to 39.5 percent from 35 percent. Overall, the effect of the law is simple. It will be the first major tax increase in 20 years.