As the US Congress prepared to vote on a last-minute deal to avoid a federal debt default, euronews looked at the underlying causes of the crisis and the deeper problems facing the American economy, in an interview with Dan Arnall, Business Correspondent with ABC News in New York.
Alasdair Sandford, euronews: “We’ve heard a lot about the ‘imminent catastrophe’, as people say, if the US defaults on its debt. How did the country get into this mess in the first place?”
Dan Arnall, ABC News: “Well it has been decades and decades of financial mismanagement and fiscal irresponsibility, I think is what a lot of people would say, certainly ordinary Americans. We have seen the last two administrations of course financing foreign wars from state finances, we have seen significant tax cuts done during the early Bush administration to counter recession in 2001, and we have seen the Obama administration really running at a massive great recession, with a kind of an aggressive spending policy, the anticipation being that stimulus would help get us out of it.
“It has certainly not worked as significantly as people had hoped, so there is plenty of blame to go round, but I think ordinary Americans at this point are realising that folks in Washington have been a little bit irresponsible with public finances, both the spending and revenue side of things.“
euronews: “Is there a ‘quick-fix’ cure here, or is fundamentally the American economy sick?”
Dan Arnall: “I think we are stuck in what can widely be considered a real kind of slog here. You have got businesses seeing profits go up at substantial levels, really for the past year and a half. The problem is they are reluctant to start hiring workers and growing their businesses, because the American consumer has not started spending again as many people had anticipated they would.“
euronews: “Meanwhile a lot of people are afraid for their jobs, and unemployment pushing 10 percent is extremely high.”
Dan Arnall: “Certainly we are looking forward on Friday of this week to a report about July jobs and hiring in the US. The anticipation is we are going to jump from what was a real disappointment in June. But even if companies start hiring here in the US - maybe 100,000 new jobs during the month – it is not going to be enough, and certainly not substantial enough, to push unemployment down in any real way before the election in November next year.
“It is certainly a problem for ordinary Americans right now, and it has a lot to do with consumer spending and sentiment. If we don’t see employment pick up, people simply are not going to start spending on some of the ‘big ticket’ items that we need to help push the economy back on an upward trajectory.”
euronews: “And where does all this place the US in terms of the global economy? How much is the US now at risk from emerging markets, for instance, such as China and India?”
Dan Arnall: “The smart money here in the US is certainly looking for opportunities in those emerging markets. I think if you are looking for growth as an investor – and certainly this is what the analysts are telling us - people are starting to put their money to work in areas of the global economy where you are seeing a more profound and sustainable growth pattern.
“The US of course might see a bit of a spark here in the next year and a half based on a bit of a currency fluctuation: frankly, the weaker the US dollar is, the more manufacturing jobs will come back to the US, jobs we haven’t seen here in decades. So that is a potential item that could be an actual ‘positive’ for the US in terms of growth, long-term.“