US budget battle leaves world wary

The crisis may be over, but international observers warn congressional dysfunction has damaged US reputation

President Barack Obama, speaking in Washington, seen on a screen at the New York Stock Exchange Thursday. He said the shutdown "inflicted unnecessary damage" to the economy and damaged America's credibility around the world.
Richard Drew/AP Photo

With the GOP reluctantly consenting to a short-term fix to end the 16-day government shutdown, Americans rested easier Wednesday night knowing that hundreds of thousands of furloughed workers would head back to the job and government services would finally resume.

The world, meanwhile, remains on edge about the burgeoning brinkmanship in Congress, which some fear has become the new normal.

Martin Hennecke, chief economist at the Henley Group, noted that the shutdown crisis may make some central banks, such as China's, more "nervous" about holding U.S. Treasury bonds and spur them to move faster into assets denominated in other currencies.

According to a widely read editorial for China's Xinhua news agency published earlier this week, however, the world's second largest economy could also have reason to gloat.

Liu Chang, who penned the column, called for a "de-Americanized world," riding the wave of anti-American sentiment augmented by the shutdown fiasco.

"The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising (the) debt ceiling has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonized," Liu wrote.

Xinhua published the article only in English, presumably to target an international audience, and though some observers have called it "government propaganda," the article seems to have hit a nerve for those concerned about China supplanting the U.S. atop the world order.

Specifically, Liu suggested that a new international reserve currency be created to replace the U.S. dollar to avoid future "spillover of the intensifying domestic political turmoil in the United States."

In his column for Asia Times, Pepe Escobar responded to the Xinhua column and suggested that the shutdown could be "the straw that broke the dragon's back."

"The old order has died, and the new one is one step closer to being born," Escobar write, commenting that the U.S. dollar is already being replaced by a "basket of currencies" in a move pushed by the BRIC nations (Brazil, Russia, India and China) — emerging economies led by China.

Russia Today published an interview with British economist Neil Mackinnon in which he supported the notion that the shutdown threatens confidence in the dollar.

"I think these periodic crises undermine confidence in U.S. economic policy; they undermine confidence in the U.S. dollar as the world's leading reserve currency," he said. "And if this dysfunction continues, then over time international investors will be looking for a reform of the international monetary system and they'll be challenging the role of the dollar as the leading reserve currency."

Mackinnon concurred with Asia Times' Escobar that the U.S. dollar is waning in global significance in part because of congressional dysfunction: "These changes that are taking place could easily be accelerated by the problems we are seeing in America at the moment."

Commentators also noted that President Barack Obama's no-show at the Asia-Pacific Economic Cooperation summit in Bali last week — due to the shutdown crisis that he was under intense pressure to resolve — allowed Chinese President Xi Jinping to shine in the absence of his American rival.

Some went so far as to call Obama's missing the summit a "diplomatic disaster" that would fuel Chinese diplomatic aggression.

'Washington standoff'

Other voices doled out some friendly advice to the world's most powerful nation.

London-based, Russian-born economist Anatole Kaletsky wrote at Reuters that an economics lesson was in order for U.S. lawmakers wrangling to reduce the country's nearly $17 trillion debt.

"Nations that try simultaneously to reduce their public and private debts are doomed to stagnation, with monetary policy almost powerless to help when interest rates are near zero," he wrote.

"Could someone please explain (this) to the budget warriors in Washington?"

If anything good came of the shutdown, it may be that the crisis offered — at least in the eyes of international observers — an opportunity to reflect on their own democratic practices. In Cape Town and Mexico City, the crisis highlighted the notion that newer democracies might be doing it better.

"There are few better remedies for pessimism on the state of South African politics than some time spent in the United States," Gavin Silber wrote in a strongly worded commentary for South Africa's Mail & Guardian. "Its government seems to be continuously divided and increasingly inept at advancing the interests of its people."

Silber commented that the Rainbow Nation should reflect on its recent history and embrace the democratic ideals it long fought for — ideals the U.S. populace seems to have forgotten over time.

"South Africa certainly has its share of problems, but we can be thankful that citizens still feel that they have the power to counter injustice and the abuse of power, and act on it," he wrote.

But for a lesson in how to avoid the farcical political impasse that arose out of debt ceiling negotiations, perhaps the U.S. need look no further than its southern neighbor.

Carlos Heredia, a professor at the Center for Research and Teaching in Economics in Mexico City, said the U.S. would be well served by turning its attention to Mexico, where lawmakers have learned to put the nation before the party.

A day before taking office in December 2012, Mexican President Enrique Pena Nieto crafted a political pact between the country's three major political parties that has allowed Mexican legislators to pass unprecedented reforms aimed at improving education and spurring economic competition.

"You can see why President Obama, so embattled over the years, admires the political consensus-building in Mexico, pointing out in his May visit that the parties are competing vigorously while still forging compromise," Heredia wrote in an op-ed for the Christian Science Monitor.

It should be noted, though, that Mexico's education reforms have been met with strident opposition and protests.

Still, until U.S. lawmakers are ready to heed lessons such as the one from Mexico's government, they will likely remain the butt of jokes.

Referencing a "Mexican standoff," the term prevalent in American popular culture to describe a hostile guns-drawn confrontation in which neither party can safely kill or escape the other, Heredia quipped: "Maybe we will need to rephrase that and call it a 'Washington standoff.'"

With wire services

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