Government Shutdown: The Impact on Global Relations

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Oct. 3 (Bloomberg) -- Nicholas Economides, a professor at NYU's Stern School of Business, discusses the global economic spillover effects from the U.S. government shutdown. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

To withstand america's first partial government shutdown in 17 years?

The spillover effects are in relatively weak areas such as europe.

In the far east as well.

Growth is going to slow down worldwide because of the government shut down.

There is also the impending risk of the debt ceiling not being raised in time.

How does the shutdown impact america's ability to promote its goods, particularly in export- inctensive emerging markets?

They don't have the people who would do that working and the credibility of the government has been diminished tremendously.

On top of the damage of the shutdown, the two parties are playing a game of chicken on the debt ceiling issue.

The consequences can be truly devastating for the u.s. economy.

And worldwide economy.

The administration has taken great strides in promoting what it called the pivot to asia, an increased focus on the region because of its strengthening economy.

The president's plan stops in malaysia and the philippines have been canceled.

Does this raise questions in the region about washington's commitment to doing business there?

I don't think there is a doubt that washington has a commitment to doing business.

The real problem is that the president feels weak, like he has to be in washington dc to negotiate effectively.

That is really the problem.

The problem is that the domestic matters have become so acute that the president isn't able to travel abroad.

I am speaking with an economics professor at nyu.

Professor, the world rank resident -- thank president says that fiscal -- bank president says that fiscal uncertainty concerns us.

He adds that consequences could be grave.

What is the financial link between the world's wealthiest nations and those that are still struggling with high poverty rates?

The international financial system is very closely interconnected.

A few weeks ago when the interest rates here reached 10%, -- i'm sorry, three percent.

Suddenly, there was this huge increase in risky assets, risky bonds and assets worldwide.

Especially in the poorest and undeveloped countries.

Their growth was affected much more adversely than the u.s. growth.

This being the country with the least risk, when things don't go well here, it is felt everywhere.

It is felt sometimes much more acutely elsewhere.

What about europe?

The french foreign minister said yesterday that if the u.s. government shutdown lasts, it would slow down the economic recovery in france.

How so?

There is a lot of trade between the countries.

So, if there is a reduction in growth in the united states as expected because of the shutdown, then the ability of france to export goods in the united states is diminished.

French growth goes down.

That is to be expected and i think he is right to point out that given the interconnectedness that exists right now, we cannot just say that this is purely an american problem.

No doubt that the federal reserve is keeping a close eye on all of this.

How might the partial shutdown impact the fed's thinking as far as winding down monthly asset purchases?

Would they be more inclined to hold off on tapering because of the potential lagging affect of the shutdown?

That would be the rational thing to do, to wait, see if tapering can be postponed by a couple of months.

To some extent, that depends on the choice of the successor to mr.

Bernanke.

I think that no matter who that is, it is likely that tapering is going to be delayed, maybe until the end of the year, maybe a bit after.

Economics professor at nyu joining us from our san

This text has been automatically generated. It may not be 100% accurate.

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