TEXT OF STORY
JEREMY HOBSON: We heard yesterday that the Brits will cut government spending by 19 percent over the next four years. Meanwhile the French Senate may vote today on pension reform. This is the issue that’s led to all those big protests in France. The government is trying to tackle huge budget deficits. Sound familiar, America? It does to our economics correspondent Chris Farrell.
CHRIS FARRELL: So, what do I do? I look at government bond deals.
HOBSON: Of course.
FARRELL: Isn’t that what everyone does? I love government bond deals. Lots of information in bond deals.
HOBSON: Who doesn’t?
FARRELL: Well, French bond deals are up compared to say German debt. But here in the U.S., Jeremy, you know we hear over and over and over again about this huge federal budget deficit that we have. And it is huge! $1.3 trillion but our interest rates are remarkably low.
HOBSON: And what’s the message in that? Why are interest rates so low? I mean nobody’s happy about the red ink here but we don’t have any strikes going on.
FARRELL: Yeah, but I think the difference between France and the U.S. is really instructive. If you go back to the mid-90s French government was dealing with a big budget deficit. And so, it made some changes. And guess what, Jeremy? There were strikes and protests. And at that time there was a comment made by Daniel Cohn-Bendit. He was better known as Danny the Red. In 1968, he was the charismatic student — the year of the revolution — you know, bringing down the French government. Well, he was being interviewed about what was going on in France several decades later, and I’m paraphrasing here but he said something very important. He said “In America, before you get major changes, there are these congressional hearings, there are these public debates between Congress and the president. You got this whole process of public discussion. Where as in France, the government just says, ‘Here’s what’s going to happen,’ and we end up with strikes.”
HOBSON: And we’re right in that process right now. I mean that conversation does seem to be going on in Washington as we speak.
FARRELL: You’re absolutely right. And here’s what’s really striking: hard-nosed investors, the so called bond market vigilantes, they’re betting that the conventional fiscal pessimism about the U.S. is wrong. That if the debt, or when the debt and the deficit threaten our prosperity we’ll change the rules of the game. So here’s the lesson in bond deals: don’t sell the American political system short. At least not yet.
HOBSON: Those bond-guys are really optimistic people. Alright, Marketplace’s Senior Economics Correspondent Chris Farrell, thanks so much.
FARRELL: Thanks a lot.
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