Skip to main content

U.S. be warned: Default would cause global crisis

By Andrew Hammond, Special for CNN
October 11, 2013 -- Updated 1809 GMT (0209 HKT)
Hong Kong stock exchange cut the value of U.S. Treasury bills, a sign of concern that the debt standoff could end in default.
Hong Kong stock exchange cut the value of U.S. Treasury bills, a sign of concern that the debt standoff could end in default.
STORY HIGHLIGHTS
  • Impact of U.S. default would send out global economic and political shockwaves
  • U.S. reputation as responsible power would be undermined
  • Internationally, pro-American views appear already to be sliding
  • There's a perception in many capitals that domestic partisanship is infecting U.S. foreign policy

Editor's note: Andrew Hammond was formerly U.S. editor at Oxford Analytica, and also a Special Adviser in the UK government of Tony Blair.

(CNN) -- As the U.S. partial government shutdown continues into almost a third week, the stakes are growing. Of upmost concern is not a lengthy closure of the federal bureaucracy, but that Washington could default on its debt around October 17, unless the debt limit is raised by Congress.

The impact of default could be catastrophic, and not just economically. As Secretary of State John Kerry asserts, this would send a message "of political silliness" that we "can't get our own act together" so we need to "get back on a track the world will respect."

In other words, the country's reputation as a responsible international power, both in terms of domestic and foreign policy, is being undermined. Recognizing the gravity of the situation, President Barack Obama cancelled his important week-long trip to Asia to try to secure a breakthrough.

Internationally, the spectacle of what is perceived as Washington's growing political dysfunction in recent years is as bemusing as it is alarming. And, according to some data, this is a driver behind a decline in the country's international reputation.

For instance, the 2012-2013 FutureBrand Country Index shows a continued fall in the international ranking of the United States compared to other nations. Based on a sample of about 3,600 people in 18 countries, it concludes that the country is "in decline," partly because of "successive fiscal crises."

Government shutdown: Signs of progress
Kids to Congress: Act like adults

This builds on earlier studies by the organization, including in 2011-12 which highlighted "intensified speculation about America's long-term stability," partly as a result of the downgrade by Standard & Poor's of the country's credit rating. This was prompted by the last near debt default of Washington in 2011.

These findings on the U.S.'s reputation are echoed by the 2013 BBC Country Rating Survey, which interviewed about 26,000 people in 25 countries, and also the 2013 Pew Global Study based on a sample of about 37,600 in 39 countries. The BBC poll recorded a fall in positive views towards America for a second consecutive year, while the Pew survey found that pro-U.S. sentiment is slipping, after a strong bounce following Obama's election in 2008.

To be sure, the scale of reputational damage is not -- currently -- as serious as that which faced the country during the previous Bush administration. For much of that period, surveys indicated profound international concern with U.S. foreign and military policies. Indeed, the country's reputation had fallen to its lowest level since at least the Vietnam War.

Then, as now, however, the country retains attractive qualities for many foreigners, including its popular culture and economic innovation. And the fact remains that, in times of major urgency, Washington can transcend partisan divisions and work in the national interest.

This was demonstrated, for instance, during the 2008-9 financial crisis when Congress and the administration acted more swiftly and comprehensively than many other countries to counteract the worst economic turmoil since at least the 1930s. This has been key in enabling the country to recover more quickly from recession than some other areas of the world.

While current problems should therefore be put into context, the situation is nonetheless troubling. And this is not the first time this year that a Washington political impasse has threatened negative economic repercussions.

Only at the 11th hour did Congress in January agree a deal to prevent the U.S. falling off the "fiscal cliff." It is estimated that the automatic tax increases and spending cuts might well have taken the U.S. economy back into recession.

At the core of the current troubles is not just growing polarization between Democrats and Republicans, but significant intra-party divisions too. This is especially so between moderate and right-wing Republicans (and the Tea Party faction).

Thus, although House Speaker John Boehner, the Republican leader in the House of Representatives, has pledged that Washington will not default, his efforts are being undercut by more conservative colleagues. He may therefore have to rely on Democratic votes to secure approval for raising the debt ceiling in the House.

Political infighting looks likely to only intensify in the build-up to next year's congressional elections. This threatens key reforms on the horizon, including an immigration overhaul, which is of interest to many internationally.

The perception, in many foreign capitals, is that growing partisanship is also infecting U.S. foreign policy. And, this is feeding angst over the reliability of Washington as an international partner, as has been vocalized in recent days by several countries, including China, Japan and Mexico.

Already this month, Obama has lost the opportunity to advance the Trans-Pacific Partnership trade deal as a result of the cancellation of his Asia trip. Meanwhile, U.S. trade officials were forced to postpone second-round negotiations with Brussels over the proposed Trans-Atlantic Trade and Investment Partnership.

The gravity of this reputational issue for U.S. foreign relations was recently acknowledged by two former defence secretaries. Republican Donald Rumsfeld asserted that "lack of leadership is sending a signal around the world that the United States is in decline, that that we're withdrawing, that we as a country are not going to behave in a rational manner." Meanwhile, Democrat Leon Panetta bemoaned that by "governing by crisis after crisis after crisis...the world will view the United States as less able to back its word with power."

Looking ahead this month, it remains most likely that a deal will be done before October 17 to raise the debt limit. And some scholars believe Obama has the constitutional power to raise the ceiling without congressional approval, a claim that the White House has so far rejected.

With uncertainty growing, the only sure thing is that default would send seismic economic and political shockwaves across the globe. This would not just further undermine the U.S.'s reputation as a responsible international power, but potentially send it into freefall again.

The opinions expressed in this commentary are solely those of Andrew Hammond.

ADVERTISEMENT
Part of complete coverage on
August 22, 2014 -- Updated 2145 GMT (0545 HKT)
It apparently has worked for France, say Peter Bergen and Emily Schneider, but carries uncomfortable risks. When it comes to kidnappings, nations face grim options.
August 22, 2014 -- Updated 1231 GMT (2031 HKT)
James Dawes says calling ISIS evil over and over again could very well make it harder to stop them.
August 23, 2014 -- Updated 1617 GMT (0017 HKT)
John Bare says the Ice Bucket Challenge signals a new kind of activism and peer-to-peer fund-raising.
August 22, 2014 -- Updated 2231 GMT (0631 HKT)
As the inquiry into the shooting of Michael Brown continues, critics question the prosecutor's impartiality.
August 22, 2014 -- Updated 2247 GMT (0647 HKT)
Newt Gingrich says it's troubling that a vicious group like ISIS can recruit so many young men from Britain.
August 22, 2014 -- Updated 1223 GMT (2023 HKT)
Retired Lt. Gen. Mark Hertling says he learned that the territory ISIS wants to control is amazingly complex.
August 21, 2014 -- Updated 1450 GMT (2250 HKT)
David Weinberger says Twitter and other social networks have been vested with a responsibility, and a trust, they did not ask for.
August 22, 2014 -- Updated 1103 GMT (1903 HKT)
John Inazu says the slogan "We are Ferguson" is meant to express empathy and solidarity. It's not true: Not all of us live in those circumstances. But we all made them.
August 20, 2014 -- Updated 1951 GMT (0351 HKT)
Cerue Garlo says Liberia is desperate for help amid a Ebola outbreak that has touched every aspect of life.
August 21, 2014 -- Updated 1742 GMT (0142 HKT)
Eric Liu says Republicans who want to restrict voting may win now, but the party will suffer in the long term.
August 21, 2014 -- Updated 1538 GMT (2338 HKT)
Jay Parini: Jesus, Pope and now researchers agree: Wealth decreases our ability to sympathize with the poor.
August 21, 2014 -- Updated 1200 GMT (2000 HKT)
Judy Melinek offers a medical examiner's perspective on what happens when police kill people like Michael Brown.
August 19, 2014 -- Updated 2203 GMT (0603 HKT)
It used to be billy clubs, fire hoses and snarling German shepherds. Now it's armored personnel carriers and flash-bang grenades, writes Kara Dansky.
August 20, 2014 -- Updated 1727 GMT (0127 HKT)
Maria Haberfeld: People who are unfamiliar with police work can reasonably ask, why was an unarmed man shot so many times, and why was deadly force used at all?
August 18, 2014 -- Updated 2152 GMT (0552 HKT)
Ruben Navarrette notes that this fall, minority students will outnumber white students at America's public schools.
August 19, 2014 -- Updated 2121 GMT (0521 HKT)
Humans have driven to extinction four marine mammal species in modern times. As you read this, we are on the brink of losing the fifth, write three experts.
August 18, 2014 -- Updated 2006 GMT (0406 HKT)
Pepper Schwartz asks why young women are so entranced with Kardashian, who's putting together a 352-page book of selfies
ADVERTISEMENT