Skip to main content

Quest: U.S. shutdown is playing with fire

By Richard Quest, CNN
October 9, 2013 -- Updated 1404 GMT (2204 HKT)
STORY HIGHLIGHTS
  • International economics is not always regarded as exciting or adventurous
  • But the U.S. shutdown has injected tension into Washington D.C. as leaders meet
  • Richard Quest says he does not believe there will be a default but could be problems anyway
  • But the potential for a U.S. default will, at least, make the parties more interesting, he says

Editor's note: Watch Quest Means Business on CNN International, at its new time of 20:00 GMT. Quest Means Business is presented by CNN's foremost international business correspondent Richard Quest. Follow him on Twitter.

Washington D.C. (CNN) -- Never let it be said that the world of international economics isn't exciting or adventurous. Ok, I exaggerate, because not even the most imaginative mind could construe the annual meetings of the International Monetary Fund and World Bank to be a nail-biting barn burner.

But this year events in Washington may have us on the edge of our seats more than usual. And it's all because the IMF and World Bank's biggest shareholder, the U.S., is playing with fiscal fire and engaging in budgetary ructions, the sort of which wouldn't embarrass a tinpot dictatorship country. In doing so the U.S. is driving everyone into despair and concern.

The partial slowdown of the U.S. Federal Government means we will all be in the U.S. capital as spectators to the dangerous game of chicken being played between House Republicans and the White House.

Two very serious U.S. domestic fights will be taking place under our noses
Richard Quest

READ MORE: Will glitches derail Obamacare?

And even if the budget debacle isn't of direct concern, the looming debt ceiling deadline most definitely is a crisis. Raising the debt ceiling has already been described as "mission critical" by the IMF's managing director Christine Lagarde. She ain't wrong.

So two very serious U.S. domestic fights will be taking place under our noses and the delegates to the IMF and World Bank will be powerless to do anything about them except warn and worry. The U.S. still remains the world's largest economy and, frankly, is more of an economic engine for the rest of us than anyone else.

Economist: I think Obama will step in

The reason for concern is because in the past few months the world's economic problems have turned serious -- again. Having emerged from the financial crises, battered and bruised there was a sort of progress on the horizon: The U.S. is growing despite the sequester, Europe is growing after six quarters of negative growth, China may be heading for a softish landing. And then things turned nasty, as they have a wont to do.

Economist: This could be another Lehman

READ MORE: By the numbers: Shutdown and debt ceiling

The global implications of U.S. shutdown

The prospect of tapering of bond buying by the Fed suddenly caused investors to withdraw money from emerging markets like India, Indonesia, Thailand and more. Their currencies were attacked, their stock markets wobbled. India in particular saw a 20% drop in the rupee. It has only managed to stabilize things with a surprise rise in interest rates (an act which could itself endanger India's fragile growth numbersl).

Then the Fed decided not to taper for now because the U.S. is still too weak and economists became angry with the Fed for leading them astray. It sort of left the central bank's communication strategy in tatters. You can't let everyone expect you are going to do something and then not do it -- there are consequences.

Now, in Europe, we get signs that Mario Draghi is thinking of letting European banks fill up by borrowing as much as they want for a prolonged period of time. Another Long term Refinancing Operation, LTRO, to give it the proper name, seems likely before too long.

READ MORE: Shutdown hits nuclear safety agency

If you choose to start placing time bombs anywhere and everywhere, eventually one goes off
Richard Quest

This is a clear indication that the continent's banks may be facing another liquidity crisis. Even though the German elections are over, the European banking union is well and truly mired in the deep mess of politics.

So there is a big, nasty gray economic cloud hanging over so many regions that there will be plenty to talk about in D.C.

I have no doubt we will hear lots and lots of calls that we must not succumb to complacency. We heard them after the G8. We heard them after the G20 (what a waste of time that was) and we will hear them from anyone who will listen in Washington.

Bernanke: Economic outlook mixed

But all these other issues, including the very serious questions of poverty, debt relief, new strategies at the World Bank, will be pretty irrelevant so long as the U.S. government remains partially shut and there is the real risk of mega turmoil over the U.S. defaulting on its debt.

BlackRock CEO: Start tapering ASAP

READ MORE: Shutdown a mess? No, it's democracy

MYB: Fed sees slow recovery continuing

For the record, I don't believe that there will be any such default. I worry about a "technical default" or "fiscal accident" because something, somewhere in the system doesn't happen when it's meant to. After all, if you choose to start placing time bombs anywhere and everywhere, eventually one goes off by accident.

In the parties and receptions of the IMF this week, bankers, economists, journalists and politicians will mix and mingle. They will ho-ho about how the U.S. can't get its act together in a coherent way.

They will talk in supercilious terms about how this is no way to run a railroad. And then, in a quiet moment, they will show real concern that every bit of economic growth which has been painstakingly put together over the past three years is once again in jeopardy.

I don't promise you a rip-roaring good time in Washington. And maybe I am overselling the idea of an adventurous set of meetings. But I do promise you that if you look carefully, there will be worry and concern.

ADVERTISEMENT
Part of complete coverage on
July 30, 2014 -- Updated 1818 GMT (0218 HKT)
While aspects of the fighting in Gaza resemble earlier clashes, this time feels different, writes military analyst Rick Francona.
July 31, 2014 -- Updated 0354 GMT (1154 HKT)
If India and the U.S. were Facebook friends, the relationship between them would undoubtedly be "complicated." Can the U.S. Secretary of State's visit change that?
July 30, 2014 -- Updated 1438 GMT (2238 HKT)
The death of an American from Ebola fuels fears of the further global spread of the virus.
July 30, 2014 -- Updated 1835 GMT (0235 HKT)
Take a look inside Airbus' new -- and surprisingly quiet -- A350XWB.
July 31, 2014 -- Updated 1108 GMT (1908 HKT)
Flowers, a teddy bear and the smells of jet fuel and death haunt the MH17 crash site.
July 30, 2014 -- Updated 1206 GMT (2006 HKT)
Nearly two weeks after MH17 was blown out of the sky, Dutch investigators have yet to lay eyes on the wreckage. How useful will it be now?
July 30, 2014 -- Updated 1510 GMT (2310 HKT)
The U.S. and EU are imposing new sanctions on Moscow -- but will they have any effect?
This looks like a ghost ship, but it's actually the site of a tense international standoff between the Philippines and China.
July 26, 2014 -- Updated 0048 GMT (0848 HKT)
Sure, Fido is a brown Lab. But inside, he may also be a little green.
July 28, 2014 -- Updated 1303 GMT (2103 HKT)
Photograph of an undisclosed location by Patrycja Makowska
Patrycja Makowska likes to give enigmatic names to the extraordinarily beautiful photographs she shoots of crumbling palaces.
CNN joins the fight to end modern-day slavery by shining a spotlight on its horrors and highlighting success stories.
Browse through images from CNN teams around the world that you don't always see on news reports.
ADVERTISEMENT