This week Fareed Zakaria sat down with the new head of the International Monetary Fund, Christine Lagarde. They talked about the U.S. deficit and the debt ceiling debate. Here is Christine Lagarde agreeing with Fareed Zakaria that the damage has already been done.
Fareed Zakaria: Do you think that the dangers that people speak of could happen anyway - that is, watching this process, markets might lose that kind of unshakable confidence they had that U.S. Treasury bills were the bedrock of the international financial system? That they were the cheapest debt, that it was the place where people went as a flight to safety, has all that already been jeopardized? Or is there a danger that that has been undermined?
Christine Lagarde: You're quite right, Fareed, in saying that there was a positive bias towards the United States of America, towards Treasury bills. That was the case historically. And the current crisis is probably chipping into that very positive bias.
That very strong confidence that generally led to flight equality and investment in Treasury bonds is slightly eroded at the moment. I mean, it was unheard of, only six months, to imagine that the United States could be under negative watch by the rating agencies.
To watch the full interview with Christine Lagarde, tune in Sunday at 10AM and 1PM ET.