Congress to Vote on Debt Deal

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

Audio Transcript:

Lisa Mullins: I'm Lisa Mullins and this is The World. Today in Washington the leaders of both houses of congress are lining up the votes. They're trying to raise the limit on US borrowing. A deal was struck yesterday, but it's not yet done. Add to that some weak global manufacturing data and world stocks fell today. The Dow Jones slipped as well; it was down 11 points to close at 12,132. Ryan Avent is economics correspondent for The Economist in Washington. He says that despite the partisan warfare and gloomy economic news, the rest of the world still thinks the US isn't a bad place to invest.

Ryan Avent: Whether or not they should, they seem to be behaving as though they think that. One of the interesting things we've seen is that yields on government debt (and basically, what that means is what the market feels like the US government should pay when it borrows) have been falling, and people are more willing to hold government debt. And part of that I think is that people hold US debt when they are concerned about the global economy in general, and despite the achievement of this deal there's still a lot of worries that global recovery may be in danger. So, the behavior right now indicates that people you know, their confidence may be shaken, but there's still not good option out there as a flight to safety really.

Mullins: And I wonder even though beyond the economics, beyond the numbers, to what extent, and really I know that you're keeping an eye on what happens and what's being said around the world, what are you seeing that would suggest or not that the spectacle among politicians in Washington carries a larger message to the world about American power?

Avent: Well, I mean you've heard a lot of I think sort of what you might call snarking from media and officials elsewhere in Europe and Asia...

Mullins: And also yes, government officials too, I mean we had China saying the US is conducting policy that is dangerously irresponsible.

Avent: Absolutely, I mean, and I think it hurts us in a couple of ways. I mean in one sense we are the standard bearer for the representative democracy and so you know, our ability to have an influence on events in [inaudible 2:02] and to say you need to move your governmental system toward one in which people have their views represented through a vote, you know, that's tarnished; we're less able to do that when we demonstrate that the elective government often times just can't get the job done. And I think you've seen that when people have said we may have a AAA economy, but we no longer have a AAA government. And I think that's been apparent to a lot of people for some time, but nothing has made it quite as clear as this whole debt ceiling meltdown.

Mullins: But how is that measured? I mean the idea of American power and whether or not it's in transition?

Avent: You know, the metrics most people are looking at right now are sort of the basic economic variables -- things like the pace of growth, things like the level of debt. And if you look at these things the US is clearly underperforming where it ought to be. The economy is growing slowly and we have government basically bungling around and not doing the things they ought to be doing. And we also have seen that despite this whole back and forth over the debt ceiling, the deal arrived at really doesn't make a dent in the long term fiscal problem. The US still has a big debt problem it's going to have to address eventually. And so those are the easiest things to point to. I think if you're a leader in China or in Europe, and basically say look, you've been criticizing our policies, but it's very clear you can't keep your own house in order. And you know, I don't know if there's anything to point to right now to this effect, but you will just see this reflected I think in the US influence in talks over architecture of the global economy and things like that. And it will be harder for them to have credibility in any sort of debate.

Mullins: You'll see it reflected in terms of deals that might or might not be struck, or just in US prominence in these talks?

Avent: You know, the US will continue to be a force to be reckoned with in the global economy. I mean our economy for the moment remains the world's largest and there's no question the US will have a loud voice in debates about economic policy, about military intervention in places like North Africa. But I think what is clear is that it will be more difficult for us to take sort of a moral high road on matters economic and political. And I think there are also some questions as to whether you know, when the head of state, when the president makes a statement about US policy to what extent he can be trusted to carry through with that, because it's clear that the congress is a highly dysfunctional institution at this point. You know, who knows if they can ratify treaties when push comes to shove, or whether they can be counted on to do what's in the best interest of the US in the global economy. And I think that's a scary thought to people around the world; they're used to having the US as kind of the lender/buyer of last resort. And I think people are just recognizing that that's not going to be the case anymore; that we can't be counted on to step in and do the right thing.

Mullins: Ryan Avent writes for The Economist. He's also the author of The Free Exchange blog on the newspaper's website. We're going to make a link at Thank you, Ryan.

Avent: Thank you.