Global Leaders Watch As U.S. Budget Drama Unfolds

President Obama traded barbs with Republican House Speaker John Boehner on Tuesday, but there was no sign that Congress is any closer to re-opening the federal government. At a news conference, Obama warned that the whole world is watching. It is, and so far the reviews aren't good.

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RENEE MONTAGNE, HOST:

President Obama traded barbs with Republican House Speaker John Boehner yesterday and there's no sign that Congress is any closer to re-opening the federal government. What's more, unless lawmakers act, the government is expected to exhaust its ability to borrow money next week, setting the stage for a possible default.

The president warns that the whole world is watching this drama. And the reviews, he points out, are not good.

PRESIDENT BARACK OBAMA: It makes it look like we don't have our act together.

MONTAGNE: Mr. Obama argues that the U.S. is already paying a price for the budget battle, in missed opportunities, and that the long-term damage could be worse. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: The stones that American politicians have been chucking at each other are sending economic ripples around the globe. And if policymakers aren't careful, those ripples could turn into a tsunami. Christine Lagarde, who heads the International Monetary Fund, says the government shutdown's bad enough; playing chicken with the debt limit is even more dangerous.

CHRISTINE LAGARDE: People around the world are confused. They're bemused, but they're certainly not amused by what is happening in this country because it will affect the global economy if it were to materialize.

HORSLEY: This week the IMF is hosting its annual meeting in Washington. Adam Posen, who heads the Peterson Institute for International Economics, thinks U.S. officials will hear plenty from the global finance ministers, central bankers and business leaders in attendance.

ADAM POSEN: We cannot believe that what was the world's greatest democracy and economy is inflicting wounds on itself and the rest of the world this way. And don't ask us for anything as long as you're threatening the world economy this way. That is what I assume, in more diplomatic terms occasionally, is going to be the overwhelming message.

HORSLEY: Economic historian Daniel Yergin, who chronicled the rise of market economies in his book "The Commanding Heights," says a puzzled visitor from Africa asked him this week, what's going on? Just five years after the fall of Lehman Brothers touched off a global economic crisis, people around the world are again asking, is the U.S. losing it?

DANIEL YERGIN: The whole global economy, the whole system of payments and trade and investment, it all rests upon confidence, and at the center of that confidence is the United States, the very big Rock of Gibraltar. And if it can't play that role, everybody's worse off, including the United States.

HORSLEY: In his news conference yesterday, President Obama suggested that so long as Congress raises the debt limit in time to avoid a default, most of the world will chalk this up to messy democracy in action, and the long-term damage will be limited. But even if the standoff doesn't spark a bigger crisis, Obama says it's already cost the U.S. in missed opportunities. He was forced to skip an Asian summit meeting this week where he'd hoped to advance a trade deal that's an important part of his push to double U.S. exports. Adam Posen says with Obama absent, other countries were less ready to deal.

POSEN: And China, which wasn't going to be part of this deal, starts moving around saying, hey, they're an unreliable partner, I've got another trade deal I can offer you. And that's not just a hypothetical, that's literal. China was walking around saying this.

HORSLEY: Posen says the repeated political standoffs in Washington are hurting what would otherwise be a stronger U.S. economy.

POSEN: It's a very sad situation and it's a self-inflicted wound, which makes it all the worse.

HORSLEY: The Dow Jones Industrial Average tumbled nearly 160 points yesterday. But global financial markets are still relatively calm. In general, market participants expect the politicians will make a deal in time to avoid default. Yergin wonders if that confidence is justified.

YERGIN: History is littered with examples of where people should have been rational but they weren't and the consequences were bad and in some cases awful.

HORSLEY: Given that risk, Yergin says many outsiders are surprised at how dug-in America's politicians are acting. That's no surprise here at home. Scott Horsley, NPR News, Washington.

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