The World Is Watching The U.S.'s Debt Ceiling News

As the deadline looms ever closer, politicians on both sides have warned that a default would have global implications. Gillian Tett, U.S. managing editor for the Financial Times, tells Michele Norris how foreign countries are reacting to the debt ceiling news.

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MICHELE NORRIS, host: As the deadline for a potential default looms ever closer, politicians on both sides have warned that a default would have global implications. Here's President Obama speaking on Monday night.

President BARACK OBAMA: The entire world is watching. So let's seize this moment to show why the United States of America is still the greatest nation on Earth.

NORRIS: But if you look at headlines from overseas, there are obvious jitters about the U.S. financial system, and there's a grave concern that a potential downgrade in the U.S. credit rating could lead to a downturn in the U.S. economy and a downward spiral that could spread to markets overseas. To get a sense of how this national story is playing out overseas, we turn to Gillian Tett. She's the U.S. managing editor for the Financial Times. Welcome back to the program.

GILLIAN TETT: Thank you. Good to be on.

NORRIS: Now, I want to spend some time looking at how this story is being covered and digested by foreign news markets. But overall, when the president says the world is watching, what is the world seeing in this moment?

TETT: Well, it's important to point out that the world is watching right now. It wasn't watching a few days ago partly because in the eurozone in particular, people were pretty consumed with the European crisis there. But what people are looking at right now is why on Earth is the United States in a position of potentially heading towards a voluntary default because for anyone who's just been through the eurozone crisis, the idea of a government essentially heading for voluntary default is quite extraordinary.

NORRIS: So how is that playing out there in the eurozone where they've been dealing with higher taxes, wage cuts, a general malaise for some time? What are the headlines there?

TETT: I think what people find absolutely astonishing is that the U.S. government has not managed to come together and devise a plan to actually tackle the problem.

NORRIS: And some of the people involved in the financial system overseas, particularly in the U.K., have been very vocal about their distaste for the politics in the United States. Who are they ascribing blame to in this?

TETT: Well, I think people have essentially blaming the system more broadly, and I think what people in the U.K., in the eurozone and Asia as well, are particularly concerned about is that for the last few decades the U.S. Treasury bond market have been viewed as a bastion of the financial system. It was a benchmark against which everything else was measured. And now, frankly, it's like knocking out the compasses with which everybody have been navigating in recent years. It's very scary.

NORRIS: The Financial Times covers markets around the world, and I want to ask you about other places around the globe. China is the largest foreign holder of U.S. debt. How is this story playing out in China?

TETT: Well, China is obviously extremely concerned. And just yesterday, I was chatting to somebody who helps to run one of the largest funds in Asia - a vast pool of money - which he was telling me used to be more than 50 percent invested in U.S. assets. Now, that proportion has fallen to 30 percent, and it's shrinking all the time. And this particular group essentially cut its holdings of U.S. treasuries about three or four months ago because it thought the political risk were just getting too great.

The scale of disenchantment and unease that's afoot now, particularly in Asia, is very striking. It started really in 2007 with the financial crisis, and what's happening right now has simply taken it up another notch.

NORRIS: Gillian, good to talk to you. Thanks so much.

TETT: Thank you.

NORRIS: That's Gillian Tett. She's the U.S. managing editor for the Financial Times.

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