Past the debt crisis -- what now?

United States flags are seen on the outside of the New York Stock Exchange on July 29, 2011 in New York City.

Kai Ryssdal: I offer, as we get started today, two statistical representations of the debt limit debate just mercifully brought to a close. First of all, the Dow Jones Industrial Average. Down 265 points today, almost 2.2 percent. Also, the 10-year T-note. The yield on the benchmark Treasury fell today down to 2.61 percent. Crazy low, but a big vote of market confidence.

So one is left with this: After all that's happened -- default, no default, whatever -- where are we?

For that, we've got our New York bureau chief Heidi Moore on the line. Hey Heidi.

Heidi Moore: Hey Kai.

Ryssdal: So we got the deal; everything's set and fine. But are we better off now than we were like 48 hours ago?

Moore: Well the good news is, we're better off than we were four months ago, when we first started debating this. But the question is: how well off are we going to be starting now? The whole debt ceiling debate made us look dysfunctional; we all know that. But just because it's over doesn't mean we're going back to our regularly scheduled programming. We're a different country now. Everything that Congress has decided is that we are going to enter a period of belt-tightening, right? Economists called it "austerity." And this is the first time that we're really entering austerity in a really long time. So when you look at it from the point-of-view of Wall Street, of investors who buy Treasury bonds, who make decisions on whether to buy into the U.S., we're no longer that great, big expanding power. We're now a power that is contracting. We have a lot of internal problems to take care of, and one of the things that people on Wall Street are really concerned about is entitlements: Social Security, Medicare, Medicaid. Those are obviously huge flashpoints for people, but investors want to see the costs for those come down before they really have confidence in us.

Ryssdal: Let me back you up for a second, Heidi, and ask you about that bit about people buying into the United States. When they do that most of the time, what they're buying is Treasury bonds and bills, and we've been talking for weeks now about the possibility of a downgrade of our credit rating, about whether or not people are going to want to keep on buying our stuff. Has anything of that changed?

Moore: Yeah, that's another 'Meanwhile back at the ranch' right now that we have to re-focus on where we actually stand. Our credit rating may be safe, but we've made this huge public spectacle of ourselves in terms of our debt. And we have this huge debt, these huge revenues and the math just doesn't work. And so that indicates something about where we are as a country and whether investors can trust us. I talked to Michael Mata at ING Global Bond Fund, and I asked him what he thinks and what Wall Street's saying about this.

Michael Mata: I think it actually does impact the country's ability to project power. We're just another struggling giant, just like the European Union in a sense, or the Japanese or the British. The amounts of power that the U.S. has is declining. We can't issue more bonds to fight more wars, let's put it that way.

Basically, what that tells us is that investors are now thinking twice about what to do with their U.S. investments. They're diversifying a little bit; they're buying debt in other countries like Australia, New Zealand, Canada. And they're buying gold, which we've seen happen for years now.

Ryssdal: All right, back up for a second and put this in the very macro context of the recession that we thought was over a year and a half ago. The president, when he spoke today after the Senate vote, talked about the recession in present tense, like it's still going on. Do you believe that? And if you're not sure it's still going on, could we be looking at a double-dip now?

Moore: It's really hard to tell people that there's not a recession. It looks like a recession, it walks like a recession, it talks like a recession and it pays like a recession -- which is to say, not at all. And so it's very difficult to tell people, 'no, this isn't a recession, who are you going to believe -- us or your own eyes?' There's an economist, Kenneth Rogoff; he says that we're actually in the second great contraction. And it may worry you to know that the first great contraction was actually the Great Depression.

Ryssdal: Yeah, it does worry me.

Moore: Exactly. And it does take into account the fact that we have to cut our debt, and until then, we're going to have very low growth as an economy. In fact, some people think zero growth. But the good news is, as long as we don't tank, we're still winning.

Ryssdal: Heidi Moore, our New York bureau chief, with the somber economic news of the day. Heidi, thanks a lot.

Moore: Thank you, Kai.

Log in to post9 Comments

I know that Kai gets it based on his interview with Mr. Lew yesterday: it's the jobs, Stupid!! Other well-done interviews on Marketplace expounded on this point throughout the past two weeks during the debt ceiling "debate", that if the economy doesn't get going there is nothing good that will come from restricting government spending, but it seems Ms. Moore doesn't listen to Marketplace?

So Wall St. wants Social Security costs to come down? I want to see the amount of wages on which SS is paid go UP. It used to be 90% of all wages, now it's 83%. And the big Wall St. boys make most of their $$ in capital gains and avoid SS tax. I've been paying mine for 50 years and won't have their shelter millions to retire on.

Well stated folks. I enjoyed your rebuttals.

I find it laughable that the word austerity was mentioned in this story. There is no austerity in this debt ceiling deal, merely a trivial slowing of the increase in govt spending. Nothing has changed in terms of the general fiscal path our country has been heading in for the last several years: unsustainable deficits as far as the eye can see.

I know that it's de rigueur to hire a conservative voice to balance a liberal voice these days. But, where is the liberal side to "bureau chief" (a.k.a. reporter) Heidi Moore? I don't hear any opposing voice to her neoliberal parroting of the Wall Street-only view. I doubt that anyone else except financial big-wigs want to eliminate social and health entitlement programs. It is a terrible shame that it isn't corporate taxes that Wall Street is afraid of.

As Robert Reich balances out David Frum, you should consider creating an alternative view to Heidi Moore.

I echo some of the above comments. Where were you Kai, when Heidi Moore suggested that Wall Street's negative reaction today was to the debt? When in fact their reaction was a recognition that the new debt bill will reduce the number of jobs by an estimated 1.5 million. Who is going to have the money to buy anything? Echoes of Hoover.

Groan. MUST we champion the Wall Street, neoliberal, supply-side nonsense here too? As a sovereign nation which creates its own currency we cannot run out of money nor do we need to issue debt to pay our bills nor are we anywhere near the point where we can overheat the economy by creating deficits. You might do the nation a tremendous service by speaking with William Mitchell (Nation article below) or Paul Krugman or L. Randall Wray or any number of economists outside the Friedman church (not to mention having your bureau chiefs understand such basics) to clarify this matter. It is bad enough to listen to the politicians get it wrong - et tu, Brute?




I just listened to this interview on the radio and I was stunned with how fact-free it felt.

Stating that "...investors who buy Treasury bonds, who make decisions on whether to buy into the U.S., we're no longer that great, big expanding power" at the same day the treasy bond yields are hitting record lows (Wall Street Journal) really takes some nerve.

Care to quote sources about Wall Street being "really concerned about is entitlements: Social Security, Medicare, Medicaid."? To me, it looks as Wall Street today was primary concerned about a) instability of Eurozone and b) global recovery slowing down, potentially going into another recession.

Until we "cut our debt, ... we're going to have very low growth as an economy"?
So, the more economy contracts (by cutting programs such as Medicare or Social Security, I presume), the more growth we are going to have?

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