Nation's credibility unscathed despite government 'sideshow'
WASHINGTON — It's going to take a lot more political bungling to do permanent damage to America's reputation or wreck its financial markets.
The federal government's partial shutdown and a near-miss with a debt default were a worldwide embarrassment that distracted political leaders and likely slowed the economy.
Yet the world still runs on U.S. dollars. Foreign investors still see Treasury debt as the safest place to put their money. And foreign companies still view the United States as an ideal place to do business.
“It's a paradox,” said Eswar Prasad, a specialist in international economics at Cornell University and the Brookings Institution. “Even when the U.S. is at the center of the financial turmoil, there is no other place that investors can turn to for safety.”
Congress certainly stirred up financial turmoil the first two weeks of October with a duel over President Obama's health care law.
But investors didn't panic. The yield on the benchmark 10-year Treasury note was 2.62 percent on Sept. 30, a day before the shutdown began. The prospect of a default should have driven the yield much higher. Instead, the yield barely budged. It never rose above 2.73 percent.
“I think this was a sideshow,” said Christoph Kind, head of asset allocation at Germany's Frankfurt-Trust investment firm.
For all the hand-wringing in Washington about a budget crisis, Kind notes that the government's budget deficit has been sinking.
“The fiscal situation in the U.S. is improving,” Kind said. “The budget deficit is going to be below 4 percent of (the nation's economy) this year, and it's declining steadily.”
No doubt, the standoff — which produced virtually no change in policy — dented America's image and its economy at least temporarily. The last-minute deal reopened the government and suspended the debt limit. But it set the stage for another round of brinkmanship early next year. Repeated over time, a succession of crises might do lasting damage.
“We may have dodged a bullet again, but we think these episodes cumulate,” said Robert DiClemente, chief U.S. economist at Citigroup. There's a “risk that at some point investors throw up their hands and say, ‘This has gone too far.' ”
Outside the United States, “people are somewhat incredulous about it,” said Martin Sorrell, CEO of advertising giant WPP. “Going to the edge of a precipice doesn't make much sense. If you ran a company this way, you'd be out of a job.”
In Mumbai, Gayatri Bedi, owner of a photography studio, said it was irresponsible for the world's biggest economy to come so close to a default when the rest of the world depends on U.S. stability.
“In India, we don't have a lot of respect for politicians because of corruption and incompetence,” she said. “It seems the U.S. politicians are becoming more like Indian ones.”
The research firm IHS Global Insight has lowered its forecast for U.S. economic growth in the October-December quarter to a glacial 1.6 percent annual rate from 2.2 percent.
The crisis also distracted U.S. policymakers. Obama, who has been trying to focus U.S. foreign policy on China's rising economic might and other issues in Asia, was forced to skip a regional economic summit in Indonesia.
Congress has yet to make progress on issues important to businesses: immigration reform, an overhaul of corporate tax rates, a long-term deal to shrink budget debts.
“The drama sucks the oxygen from the room,” said Nancy McLernon, president of the Organization for International Investment, which represents foreign companies doing business in America.
Still, McLernon said the political dysfunction hasn't made America any less of an attractive market for foreign companies. When she attended a meeting in Britain early this month, most of the British executives there dismissed the standoff as political theater.
Kind, the German investment executive, noted that “the asset quality of Treasurys is unchanged.”
The U.S. dollar and Treasurys continue to benefit from a lack of competition, too. Some investors have been trying to diversify away from U.S. dollars by buying euros, Japanese yen or Chinese yuan.
“But all of them have got some significant structural problems,” said Michael Every, Rabobank's head of Asia Pacific financial markets research. “The nearest direct equivalent is Europe or the euro, and we know how close they are to crisis on a constant basis.”
With the dollar, “you can basically trade it with anyone anywhere and buy and sell a very wide variety of assets with minimal spread and low transaction fees at a moment's notice,” Every said. “You can't do the same with the yuan” because China controls trading in its currency.
British consultant Simon Anholt conducts global surveys that consistently show the United States remains the world's most-admired country. He said he doubts the political tussle will do any measurable damage to America's image.
“America is the most admired country on the planet by a very wide margin,” Anholt said. Foreigners “like American culture. They like American products.”
He noted that the United States dropped to No. 7 worldwide after the U.S. invasion of Iraq. When President George W. Bush left office in 2009, it quickly bounced back to first place.
Anholt doubted that ay U.S. political crisis will change things.
“We tend to go through our lives with very fixed, sometimes childish clichés about other countries,” he said. “We don't change them unless we are forced to.”
U.S. politicians have “been trying very hard” to ruin America's reputation, he said, “and they haven't done it yet.”
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Shell shovels millions into proposed Beaver County plant site
- Extended oil slump takes toll
- Off-duty but on call: Suits seek overtime
- When it comes to home ownership, Hispanics finding locked doors
- Of Caitlyn Jenner and workplace restrooms
- Companies hand out perks, benefits instead of pay raises
- Muni bond funds stressed
- Bond funds hold onto cash
- Tech Q&A: Why you should test your router
- FirstEnergy to build coal waste processing facility in Beaver County
- $2-per-gallon gas expected by year’s end, but not in Western Pa.