When Timothy Geithner said yesterday morning that “the eyes of the world are on us,” it was, in Treasury Secretary terms, akin to pleading with lawmakers not to embarrass us any further in front of the neighbors. But when the eyes of the world opened Monday morning, they beheld nothing but the spectacle of Democrats and Republicans still brawling on the front lawn.
The failure to reach a political compromise that might prevent the world’s largest economy from running out of money next week dragged down Asian stocks Monday—especially banks and exporters, such as Toyota and Honda, which depend on U.S. consumers or U.S. debt—but the declines were limited, falling short of the kind of post-Lehman Brothers panic that some had imagined going into the week. In that sense, it is a bleak statement: Asia has learned to price in American political dysfunction. “The whole U.S. debt ceiling negotiation is a well-rehearsed soap opera,” commentator Tang Huayuan wrote Monday on Weibo, the Chinese equivalent of Twitter. “Nobody thinks Americans will choose suicide when they have known solutions,” a senior official at the Bank of Korea told Reuters. Indeed, the failure to make progress produced, in Asia, less a hue and cry than a vast, continental groan.
Nobody has more skin in this than China, America’s largest creditor, which stands to see its investments suffer if the United States faces a ratings downgrade and debt default. Publicly, Chinese officials are playing it cool—“They will definitely reach an agreement,” Xia Bin, an adviser to the Chinese central bank, was telling every reporter who would listen Monday—but that has almost nothing to do with what will actually happen in Washington. The Chinese have their own reasons to be stoic: as the top holder of American Treasuries, Beijing is keen to convey calm to global markets, and it is also prudent for domestic political reasons. Chinese citizens and hard-liners are already questioning the wisdom of relying so heavily on investment in the U.S., so Chinese government financiers have found themselves in the uncomfortable position of defending their bets. Among the top Chinese discussions unfolding Monday on a popular Web forum hosted by the People’s Daily was a string that tied the debt impasse to a summer-lunch program for American students: “What the hell!” a commentator wrote. “The U.S. owes China God-knows-how-much money and now it’s giving free lunch to its children.”
Even if, as expected, lawmakers reach a deal to avoid a default, that does not mean the U.S. has not suffered damage to its credibility already. Hillary Clinton, traveling in Asia, spoke to an audience in Hong Kong Monday and unveiled the usual list of American economic objectives: she called on the Chinese and others to consume more and save less, reduce barriers to American companies and pursue open and fair trade. Projecting reassurance, she declared: “We are a resident power in Asia—not only a diplomatic or military power, but a resident economic power. And we are here to stay.”
It was an inopportune moment for an assertion of American leadership, and when it came to the debt crisis Clinton could muster little more than a wispy guarantee that American politicians “understand” what they’re doing. “Let me assure you we understand the stakes. We know how important this is for us and how important it is for you.”
She tried to put the best face she could on the “political wrangling,” chalking it up to democratic hurly burly. But if anyone in the audience was tempted by democracy, that particular kind of political wrangling was perhaps not the best advertisement.
