July 22nd, 2011
09:10 AM ET

Zakaria: Debt ceiling 'almost a sideshow' to other economic challenges

As the debt ceiling talks slog on, the negotiations - necessary to stave off an unprecedented national default that could prove economically devastating - are testing the ability of leaders on both sides of the aisle to legislate effectively in an era of increasingly shrill and unyielding partisanship.

But what about the economic implications? Fareed Zakara talks to Tom Foreman on "In the Arena" about how the debt ceiling is "almost a sideshow" to the challenges of economic growth and job creation.

FOREMAN: Fareed, we've been hearing so much about what will go wrong if the debt ceiling is broken. And yet I feel this rising current of people saying, "Make no mistake about it – even if we solve this, there are going to be some hard times for this country as a result of the solution. "

ZAKARIA: Well, the debt ceiling itself is almost a sideshow. The fact that it has become center stage is just because one group, the Tea Party, within the Republican Party, decided to make it that.

The debt ceiling simply reflects the fact that we are spending more than we take in.

FOREMAN: And then we have an economy in shambles right now all over the country.

ZAKARIA: And that we don't have growth. The only way you're going to get this economy back on track is if you get growth. If you look historically, the times that the budget deficit has gone from being a number one concern to moving down when we've solved the problem, it's all been that we grew faster than we thought we would.

If you can get growth back, if we can get people employed, get them paying taxes, you can't cut your way to a happy future because the more you cut, you get yourself into a downward spiral like you see in Greece.

You know you - because what does it mean to cut government spending? It means to lay off people who now don't have jobs. They can't pay taxes, they can't go to the diner, they can't buy stuff. So it may work in theory, but in practice, the more you cut, the more you're depressing the economy.

FOREMAN: One of the predictions I've read is that the solution to the debt ceiling problem could cost us a million jobs over the next few years. We could lose, you know, what we've created in a very short period of time.

Do you think that's too dire? Do you think that's possible?

ZAKARIA: It depends on how much we cut and how fast we do. I think what President Obama has been trying to do - again, I think, quite wisely - is push some of these cuts off into the future. When you signal to the markets we're getting our budget deficit under control but don't do it in an economy that is fragile right now.

But if we were to precipitously start laying off wholesale school teachers, firemen, policemen, then, yes, because all of a sudden you have fewer people paying taxes, you have fewer people buying goods, you have fewer people buying products.

We really need to look at what's happening in Europe. The governments that cut too fast too far actually depressed their GDP growth and increased their budget deficits as a result.

FOREMAN: Talk to me about some of these key building blocks that have to be restored. I have had many conversations over months where people have said, if we do not restore the value of housing in this country and the construction market, nothing else we do will solve this.

Is that a fair building block to begin with?

ZAKARIA: I think it's absolutely fair. The problem is it is the most difficult building block to restore because housing went through probably the biggest bubble since the 1920s. It burst.

If you look at the Nasdaq bubble, the Nasdaq bubble burst at its peak at 5,000. What is the Nasdaq now? It's 3,000. In other words ... 21 years later, you're barely halfway back to the prices. I'm not suggesting that will happen in housing.

FOREMAN: Well, it might, though. I've had experts in housing who said it could be 15 years before markets recover in some places.

ZAKARIA: Certainly it's going to take a while. And so then the question becomes what can you do? And people say well, you need a lot of government support. Maybe, but part of the problem was too much government support and too much government encouragement to people to take on large debts.

FOREMAN: Let's say we can't - let's say we can't tackle housing right now or up front, give me a couple other building blocks that you think are critical to address right now so that we get beyond, not just the debt ceiling fight, but our overall inability to create jobs. Every politician says we got to create jobs and not one of them seems to have a clue how to do it.

ZAKARIA: There is one absolutely, obvious way we could do it. We have an infrastructure in this country that is in shambles, OK, point one. Point two, we have 20 percent unemployment in the construction industry. So there are millions of people out of work in that industry. Three, 30-year money - 30-year bond rates are 2 percent. So you could borrow money at 2 percent for 30 years, rebuild American infrastructure, put people to work.

All expenditure is not the same. When you build a bridge or expand a highway that is going to increase economic activity for the next 100 years, that's called an investment. That's not an expenditure.

FOREMAN: And as you know it was the theory behind all those shovel-ready projects. The idea was we will have these projects and yet we found that ultimately even the president himself said not all shovel-ready were shovel-ready.

ZAKARIA: Well, not all shovel-ready was ready, but let's remember ... of the $800 million stimulus plan, only $100 million was infrastructure. Most of that has actually turned out to be on time and on budget, but it's a $14 trillion economy. People say why did China manage an infrastructure program that worked?

Well, here's the main reason. They spent 10 times as much as we did as a percentage of GDP. So -  you can't expect to get a big bang by putting $100 billion into a $14 trillion economy.

FOREMAN: Let me ask you one last quick question here. Does it trouble you that we keep looking at all of this so much in terms of the politics, which party comes out wining in this whole thing? Because I'm just convinced that both parties ultimately lose terribly because we all lose with problems like this.

ZAKARIA: I think it's the worst part of Washington right now, which is that it seems as though - you take something like infrastructure. Republicans have supported something I've been pushing, a national infrastructure bank to finance this kind of infrastructure, so it doesn't cost the public much. The private sector would do it.

Kay bailey Hutchinson sponsored a bill, Chuck - Richard Lugar, Chuck Hagel all support it. Can't any traction? Why? Because Obama proposed it. And it seems to be now a kind of almost idea in the Republican Party that anything Obama supports, they have to oppose.

We have to get to a point where we can actually get the business of the country done and not worry about who's going to get credit for it because if we get into this game, you know, we've got - we've national energy policy we have to solve, we've to solve immigration, we've got to solve health care. We've got to get these jobs done. And oh, by the way, we've got to deal with the debt ceiling.

We can't worry about who gets credit. We need to get these things done too fast.

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Topics: Debt Crisis • Economy

soundoff (459 Responses)
  1. S.P.Q.R.

    Circus Maxamus; finally comes to the American people, sit back and enjoy your self destructive my way or the highway politics. It has led to the fall of many countries and empires. With all your reliance on electric communications you still fail to effectively communicate with each other, nobody seems to want to listen. I was taught that it is the sign of a mature adult to be able to entertain an idea with our having to except it; to be able to modify your opinion with others to be able to get the job done. I have seen America's enemy and it is ourselves and and no other. Sic glorium transit mundi !

    July 22, 2011 at 7:36 pm | Reply
  2. Patricia D

    Let's just "forgive" all debt the world over. No one owes anyone anything anymore. Let's go back to bartering and live by the Golden Rule. We need politicians as much as we need a hole in the head. They have corrupted the profession and have taken it way off track. What we need are public servants who help to facilitate what the people want. Look around the world and notice all the corrupt governments. Who needs it?

    July 22, 2011 at 7:36 pm | Reply
  3. Jeff

    Zacaria's reference to Greece is BS. Greece got into the mess its in because it never stopped spending. Saying we'll be just like Greece if we don't go further into debt is stupid. Suggesting that Government spending affects employment is BS as well. The majority of tax payers are not Government employees, so how will reducing Government spending reduce the number of taxpayers? it won't.

    Not raising the limit doesn't equal default. It means you can't borrow more. It means the Government will have to cut something to pay for something else it wants, instead of just confiscating as much of our wages as it wants for every pet project it has.

    I work with the US Government every day. From you comments I can tell that most of you here do not. Make no mistake, every day a Government bureaucrat comes to work and spends his or her time trying to figure out how to spend more of your money. EVERY. DAY. Millions of Gov employees are thinking of how to spend more money. Because managing larger projects or supervising more staff gets them a pay raise.

    You get what you reward. In the case of US Government employees we reward undesirable behaviour handsomely.

    July 22, 2011 at 7:38 pm | Reply
  4. panhandle

    The republicans only care about two things: keeping the fat cats rich and destroying anything Obama touches. You can dress it up any way you like but that's the bottom line. I hope Obama has the balls (for a change) to call their bluff. But most likely he'll cave.

    July 22, 2011 at 7:49 pm | Reply
  5. "He's Dead Jim."

    Nice article. Poor editing. What is being spent on waste? What is the waste? I don't support cuts that hurt us but, I do support cuts to funding that is silly. Like money going to afghanistan and pakistan. Opulent offices for Home Land Security people etc... Why can't we find out where the waste is being funded and cut it out? Our political leaders need to learn that an idea does not suck because it is not their own. They need to stop using every potential issue as a scare tactic and a point the finger fest.

    July 22, 2011 at 7:51 pm | Reply
  6. johnjohninla

    Should the public get ready to march into washington and arrest
    the congressional republicans for treason?

    What do you think?

    July 22, 2011 at 7:57 pm | Reply
  7. Steve

    What a clueless totalitarian totally ignorant of history.

    Economic strength comes from having a solid PRIVATE economy of ENTREPRENEURS and people providing VALUABLE goods and services. If government spending and control were the answer to a weak economy, the USSR wouldn't have becomes a starving rustbucket by the time it collapsed from within...

    July 22, 2011 at 7:59 pm | Reply
  8. johnjohninla

    CNN doesn't have the guts to post this:

    Should Americans march into washington and arrest the republicans for treason?

    July 22, 2011 at 8:00 pm | Reply
  9. Eugene

    The Republicans only care about the tax breaks for the rich, and destroying our country, and destroying the presidency of President Obama. Republicans don't care about the middle class – they only want do take away social security, medicare, and medicaid from the middle class Americans.The TEA Baggers are driving this country to Hell.

    July 22, 2011 at 8:07 pm | Reply
  10. I Hate Lies

    Wow... that was absolutely the most awe inspiring analysis. I mean that was on the depth of Water is Wet analysis...

    Here's a real piece of information that all the experts are overlooking. A key component of the problem is the reliance on the housing market. In several past recessions the early indicators was housing. That's actually a lie. People didn't buy houses unless there was a stable income and a line of credit.

    However today, the housing prices are so high, that people are out of their homes and etc. On top of it, they are still building homes, that people cannot afford to buy. So there is surplus houses on the market with more houses being added.

    So what is the real solution.... Let the real estate bubble burst. House prices will drop dramatically. It will hurt those who got in on the wrong end of the timeline. Once prices get to what the market can sustain, people will buy. Otherwise they will rent until they can buy.

    But local governments do not want the bubble to burst because a large part of their income stream is based on property tax. At which point, if the values go down, the budgets have to go down. Bureaucratic systems are designed to prevent their termination.

    July 22, 2011 at 8:39 pm | Reply
  11. Bertrand mukete

    I agree with what Fareed is saying and both sides of the parties are playing chiken game on the table on behalf of the peoples lives. I think we should highly consider infrastructure investments as suggested by the PRESIDENT to help fuel growth back to a downly driven economy 5-10 yrs from now.

    July 22, 2011 at 8:42 pm | Reply
  12. jab

    Fareed makes an excellent case for what should be done but hardly anyone with the power to make the decisions necessry is listening. Negativity and finger pointing seems to be both sides solution. It would be nice if we quit electing politicians and start electing legislators who are there to work "FOR" the people not for their next election. We really need legislators that can create solutions to our country's problems, make adjustments to laws and policies that need it and improve the citizens daily lives. This goes for any legislature, state or federal, county or city. Discuss it all you want, argue about possible solutions but for "OUR SAKE" be good enough to get it done.

    July 22, 2011 at 9:17 pm | Reply
  13. Kumaran

    Mr. Zakaria, an excellent article. I liked that part you said Republican policy is that oppose everything that Obama propose. It is unfortunate that now Obama has to propose something exactly opposite to get something done in Washington.

    There is a saying in one of the local languages of India that "the mother-in-law only wants to see tears in her daughter-in-law even if that means the death of his son". Here Republicans is the mother-in-law, Obama the daughter-in-law, and the son in the country". The policies that Republicans in the recent past follow are going to kill this country but it seems they don't care. They just want to see tears in Obama's eye.

    July 22, 2011 at 9:17 pm | Reply
  14. Joe Csi

    $14 trillion + $2.5 Trillion(proposed increase) + $6 trillion from Fannie and Freddie = Debt to GDP higher than Greece. The only thing saving us now is the Dollar is still the Reserve Currency of the world but that is changing daily by other countries agreeing to swap goods and services in currencies other than the Dollar. This is not a complicated issue. The bill is due or we will no longer have the safety of the reservr currency status.

    July 22, 2011 at 9:26 pm | Reply
  15. Liz1388

    The GOP let a radical, ill-educated, incompetent and fear-based minority take charge of their party. Even the more moderate members of the party are painted into a corner they can't get themselves out of. This is the party that covets winning uber alles, including well being of the country.

    This is the party who says they hate PC, but they've created an even more rigid and diabolical version of political correctness and actually make party members sign pledges to it!

    I don't know how much more of a mess these people have to cause (that even they can't blame on Dems), before the majority of voters rebel and the country swings back towards the middle.

    George W's legacy proves that once you go far enough down the road of fear and stupidity, the damage done becomes almost impossible to undo. As the poet said, "This is how the world ends, not with a bang but a whimper."

    July 22, 2011 at 9:29 pm | Reply
  16. Dan

    Anyone who thinks that one single party or contingency is to blame here is sadly mistaken. The last Congress was supposed to put this to bed, but the Dems knew that they were going to lose the House, so they left it for the current Congress to take care of. The Republicans foolishly took the bait, made worse by the freshman Congressmen, who have little or no political experience, who are now trying to humble a weak and effete president, who in turn wants to portray himself as being tough, while making concessions that tick even his own party off. What a turkey shoot!

    July 22, 2011 at 9:31 pm | Reply
  17. Dan

    Anyone who thinks that one single party or contingency is to blame here is sadly mistaken. The last Congress was supposed to put this to bed, but the Dems knew that they were going to lose the House, so they left it for the current Congress to take care of. The Republicans foolishly took the bait, made worse by the freshman Congressmen, who have lit-tle or no political experience, who are now trying to humble a weak and feckless president, who in turn wants to portray himself as being tough, while making concessions that tick even his own party off. Meanwhile all of the parisan hacks like our friend Fareed want to make sure that everyone knows that the other side is to blame. What a turkey shoot!

    July 22, 2011 at 9:38 pm | Reply
  18. concerned

    It would help if CNN and every other news organization did their job and actually hammered these truths to the public. Instead you in the media give us 3hrs a night of Casey anthony nonsense & 1-4 minutes on what Washington & its elected officials are doing.

    July 22, 2011 at 9:49 pm | Reply
  19. fred swisher

    It's a mystery to me how giving oil companies big tax breaks helps the rest of us? And cutting stimulative projects helps the GDP. This is a side show iand it s another version of the blame game.
    What I'd like to see and hear much more of are the success stories. They don't just offer hope, but practicle ideas can be copied and improved on. Newark NJ. seems to me to be an example of a government making progress. Integrative medicine pioneer Dr. Andrew Weil is a great spokesman for sanity in the private sector and the health care mess. Even southwest airlines bucks the negative trends in an irritating industry.
    Fareed you are also a positive example and a force for improving our situation. keep up the great thinking and work you are doing! We need innovation, education, prevention instead of cure, and more examples of success to be celebrated.
    I don't think we can just invent a cause to rally the nation, but if we don't start focusing on our strenghts and using them creatively we'll continue to fall back into blame games that lead us nowhere!

    July 22, 2011 at 10:07 pm | Reply
  20. Red

    "You know you – because what does it mean to cut government spending? It means to lay off people who now don't have jobs."

    Zakaria always adds some nonsense like this into his work. Cutting government spending does not = cutting government jobs of Americans. Our government spends more on military than the rest of the world COMBINED. Or what about the hundreds of billions in foreign aid taken from the taxpayers of America and given to foreign governments? That is not cuttable spending, but American jobs are? Zakaria is guilty of the fear mongering he accuses the "Tea Party" of.

    July 22, 2011 at 10:24 pm | Reply
  21. Jason Zink

    Obama has shown very little leadership and bring any message or relationship with the people. Seems distant to me as a leader and really bothers me why he doesn't. Ronald Regan I believe use to have a saying on his desk that was something like " One can accomplish great things when you don't worry about getting credit for it". I agree an infrastructure bank would create jobs no brainer. But I never heard about it from the president? Like I said he never gets the public involved and shows leadership.

    July 22, 2011 at 10:54 pm | Reply
  22. L. Jensen

    48% don't pay income taxes. Yet the GOP wants to cut "SS" and Medicare. Change the tax code.

    July 22, 2011 at 11:03 pm | Reply
  23. JustSaying2U

    I always find it amusing when people compare the Federal Budget to their home budget. Just wondering...if you get in a fight with someone in another neighborhood, do you borrow money from another neighbor to buy a weapon?

    Defaulting is not like cutting up the credit cards, it's just cutting up the bill. What you owe is still there.

    It's clear to most moderate independents: The Republican House would hurt the country to get back at Obama. We will remember in 2012, believe it.

    July 22, 2011 at 11:06 pm | Reply
  24. Notislam

    Meatheads – The DEBT CEILING is a self-imposed artificial limit that has nothing to do with the USA's credit worthiness. Our DEBT as a function of GDP is the measure of the USA's credit worthiness. Raising the DEBT CEILING only exacerbates the DEBT problem.

    July 24, 2011 at 1:54 pm | Reply
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    December 13, 2011 at 11:55 pm | Reply
  28. robert wilkinson

    When oil hit $50.00 a barrel that became a significant catalyst to the financial crises we had to endure for many years.If $50.00 a barrel of oil was a significant drag on the economy,then $100.00 a barrel of oil can only guaranty many more years of a deteriorating and stagnate economy.Achieving oil independence for America won't help either because if Oil is more than $35.00 a barrel your just spinning your wheels.It dosn't matter as much where you get your oil from,what matters is how much you pay for it.I'm a retire labourer and i can see oil prices as the main damper to economy,so what's going on with all the economic academics out there.Is it possible that they can't see the simple problems because they arn't complicated enough to merrit their attention.

    July 4, 2013 at 1:51 pm | Reply
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