Why is the world facing a possible US default with a yawn?

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This story is based on a radio interview. Listen to the full interview.

Audio Transcript:

Aaron Schachter: I’m Aaron Schachter in for Marco Werman and this is The World, which is ending, right? I mean if you believe the warnings, the US government shutdown and the impending debt ceiling crisis, are about to destroy the US economy and take everything else down with it. Just this weekend, International Monetary Fund Chief, Christine Lagarde, said if the US defaults the rest of the world could tip back into recession. These comments are getting a lot of play here in the US and I mean a lot. But, what about the rest of the world? Well, The World’s Jason Margolis joins me now and Jason, you spent a lot of your time today, reading international newspapers and talking with a bunch of folks? What’s the mood out there?

Jason Margolis: Well I did read a lot of newspapers from Asia, Europe, the Middle East and let me tell you, Aaron, this is not front page news, it’s not even really back page news. Australia did have a scary headline. The Sydney Morning Herald wrote quote Default Will Make the 08 Crisis Look Tame. But, beyond that, it’s just not big news. In Brazil, I spoke with several people who said the US default? It’s not on people’s minds, and I spoke with Kai Lehmann, he’s a professor of international relations at the University of Sao Paulo, and I asked him what’s the word on the street?

Kai Lehman: On the street, I actually think there is relatively little reaction. The general point is that we don’t know what will happen. It hasn’t happened before.

Schachter: So, nobody cares.

Margolis: Well, it’s not that they don’t care, but they say we’ll care when you make us care. I mean we’ve been down this road before and the US has always pulled back from the brink, and if you look at the various stock markets as one indication, European stock markets, with the exception of Germany, all closed higher today, Asian markets were up, US markets were trading slightly lower in the morning and then slightly higher after lunchtime so it doesn’t really feel like the world on the brink of an economic collapse.

Schachter: So, it sounds like people outside the US just view this as political theatre.

Margolis: I think so. I spoke with economist, Lee Branstetter, at Carnegie Mellon University in Pittsburgh. He specializes in international economics, and he said up to this point the rest of the world is dismissing this as political theatre, he said everyone still believes there will be a last minute solution. So, I posed this question also to William Post in The Hague, if he thinks this is political theatre. Post is a Fellow at the Clingendael Institute in The Hague and he studies American policy. Here is Post:

William Post: The general sentiment in Europe is this is crazy political theatre. How is it possible that 24 or 25 Tea Party republicans have so much power in this big, big US congress? How is this possible? People don’t understand this and, well, common sense says of course, of course they will solve the problem in Washington, but also in Europe, people can look at their watches and now we see, okay we have two or three days and then it’s almost October 17.

Schachter: You know, Jason, what I don’t hear, considering how much the United States sort of tsk-tsks other economies, I don’t hear anyone sort of mocking us.

Margolis: Well, they are actually. The gentleman I spoke with in Brazil, he’s originally from Germany and he said there’s a bit of schadenfreude. They’re kind of enjoying the US. You know, the US is always telling the world what to do and here the US is with their own problems. So, you do get a sense of that. But, one thing also is very important, one take-away I got, is if this isn’t political theatre, if we are really going over the cliff, this is really scary and this is a really, really bad idea. People are just banking heavily, the world press, the markets, the people I spoke with, that this is just people who can’t get along, but when push comes to shove, they’ll resolve their differences for the betterment of the world. But if not’¦ uh-oh.

Schachter: The World’s Jason Margolis, thank you.

Margolis: You’re welcome.