CNN's Fareed Zakaria think it likely that the the Joint Select Committee on Deficit Reduction deadlocks. Here's a transcript of Fareed's conversation with Tom Foreman of In the Arena:
Tom Foreman: We finally got a debt ceiling deal, but you say the price was too high. Economically, what message have we sent to the world?
Fareed Zakaria: See, what we took was something that was taken for granted, that was that the United States would pay its bills, the credibility of the United States and we've added a layer of uncertainty to it.
So every time there is a crisis, every time there is a debt ceiling issue, every time something like this happens, there's now a thought in people's minds around the world, will the United States actually pay its bills? Will it fulfill its promises? Will it have another one of these dramas?
Tom Foreman: Why does that matter so much to all these countries around the world?
Fareed Zakaria: Because the U.S. Treasuries remain the kind of gold standard of the financial system. So you see even right now there's trouble in Europe and what you see happen is what people call a flight to safety, which means people move into treasuries, buy U.S. Treasuries.
And the result of that is we get to borrow money very cheaply. Just to put this in perspective, if we couldn't borrow money as cheaply as we do and we can borrow more cheaply than anyone in the world.
If interest rates for our debt were 1 percent higher that would be $1.3 trillion added to the deficit over 10 years. In other words, the entire debt deal would be negated by just a 1 percent rise in interest rates.
Tom Foreman: So we benefit tremendously by keeping our house clean and tidy, and right now the message we have to people is there's a kitchen on fire, we have a mess, and we don't know how to handle it.
Fareed Zakaria: And because they look at this, they think to themselves this is going to keep happening. You know, that's what I worry about. We've seen people that every time we face one of these challenges it's going to be late-night threats of vetoes, extremism, filibusters, guillotines.
It's not going to be a normal - I mean, if you look at how the Europeans, who we much deride, have handled their problems, they have methodically, systematically tried to deal with them. There are structures in place.
I mean, ironically, we're looking more and more like the basket case Banana Republic, and they look like despite the fact that they have a very difficult, much more difficult challenging problem, much more difficult challenging structures, they're actually getting their act together.
Tom Foreman: Because in the end, the deal we came up with here dealt with the immediate crisis, but did virtually nothing for the big problem.
Fareed Zakaria: No. It's a punt. I mean, it's one more occasion where Congress has basically punted, kicked the can down the road, use what metaphor you want. It cuts $21 billion out of the 2012 budget, which is the only budget over which this Congress actually has any authority.
All the rest can be changed by future congresses. What it does is then it says the Super Commission is going to figure out how to implement the real cuts and the real tax increases. And once again Congress is assuming that six months from now some body of Congress will have the courage that they right now lack.
Tom Foreman: Treasury Secretary Tim Geithner wrote in The Washington Post, "Beneath all the bluster, the prospects for compromise on broader and deeper reforms are better than they have been in years." Based on what we saw this week. Do you buy that?
Fareed Zakaria: I'm not sure how he can say that, but I mean, he's paid to say it. But what's happened? The Democrats have decided that they now need to mirror the stubbornness and extremism of the Tea Party because they look at it and –
Tom Foreman: Because it worked.
Fareed Zakaria: It worked. The Republicans say our strategy worked, we're going to double down on it. So what are each side locking into? The Democrats are saying no cuts to entitlements. The Republicans are saying no taxes. That's great except we all know the only solution to our long-term debt problem is cuts in entitlements and new taxes.
Tom Foreman: So what do you think we're going to see as we move into the relative of this year and into the presidential election year in terms of dealing with these kinds of issues?
Fareed Zakaria: I think if I had to bet I would guess that the congressional Super Commission will deadlock, it will not be able to propose a solution, and the guillotine will fall. Now, that's a big if, that Congress has to stay true to its word.
Because what Congress does it can undo. It can always say just kidding, folks, there's going to be no guillotine. But I suspect that what we will end up with is a guillotine and, you know, you will see defense spending drop and non-entitlement spending drop.
It is not the ideal way to make these cuts, particularly not on the domestic side. Because it's all going to be, you know, programs like education that get cut rather than dealing with the entitlement problem. But who said we had ideal public policy?
Tom Foreman: And for all the Americans out there who watched this whole debate and the whole time kept saying, 'Yes, but what about the economy and what about jobs once we get past the question of the deficit and the debt?' What does all this mean to them when we get to Christmas if we can't have some kind of agreement out of this committee?
Fareed Zakaria: Mohammed El-Erian, the head of the world's largest bond firm, PIMCO, just wrote in the Financial Times today that he would grade the debt deal either an incomplete or an "F," depending on how he's feeling.
The reason is it either does nothing about the job deal or does worse than nothing. Because there's nothing in here that's pro growth, there's nothing that's actually going to get the economy moving again and create jobs.
President Obama recognizes that. He says he's going to propose some policies, but absent money how do you propose anything? Because the sophisticated policy we should have is that we cut back in some areas, but invest in other areas so that we can get growth moving.
But that seems beyond the ken of American public policy now. We have to use very crude, blunt instruments, and the idea of this kind of scalpel that can cut the right areas, but invest in others, seems like we're going to have to leave that to the Chinese.