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what can we do for you? >> it is the richest country in the world but is u.s. debt out of control? president obama has bought to reassure american workers their recovery is on course. some wonder whether the markets are too relaxed about the u.s. government debt. whether they can get it under control. >> absent any action, the jet -- debt to gdp ratio will be rising. >> we hear from one economist who argues america could be a second division socialist state. >> two of britain's leading

people bring a rare audience to us. >> this is very important at the same time. >> asked to name the biggest threat hanging over the global economy and most people would think of a crisis in the euro zone, but some see a larger cloud that could make the bailout of portugal make up -- look like loose change. >> president obama when to a factory to talk about creating jobs. new figures showed the economy is not creating enough of them. they have been good at creating federal debt. this is what the head of the

central bank had to say about the long-term threat at that they covering -- government borrowing this money. >> we have done little to address this critical threat to our economy. doing nothing will not be an option in definitely. the greater the risks and more wrenching the changes to the budget will be. >> the senators will -- were well versed on the subjects. the u.s. deficit was 11% of gdp last year. it might be even higher in 2011. the average deficit of the euro zone was only 7.5%. the u.s. national debt will top 110% of gdp in five years. above the advanced countries average of 80%. the new republican congress

promised its tea party followers to take back washington and cut spending. new rules say every spending increase has to be matched by a cut. tax cuts don't have to be paid for in the same way so taxes can go down but are unlikely to go up. there is little support in or outside congress for social security which takes up a larger share of the budget. if this were any other country the bond markets would have taken flight a long time ago. but the u.s. is special. >> investors are becoming anxious u.s. fiscal policy appears to be directional list. it is clear congress is gridlock. it will be hard for the deficit to come down sharply. that always unnerves investors.

it takes a lot of problems before investors will ditch the dollar. >> america is still special for now but one lesson is something cannot go on forever and it will stop. things can get messy very fast in financial markets. >> we spoke to a national economic adviser and member of president obama's economic advisory board. and a hedge fund manager. >> i said something about this- the peace. no other country would be able to get away with the debt numbers the u.s. got away with. america's supremacy is not what it used to be. is it living on borrowed time? >> i am not sure that assertion is correct. you have to look at the

underlying strength of the u.s. economy. it is on an unsustainable deficit path in the sense that debt is growing, but i also think if you look at the economy and compare it to the periphery of europe, there is no comparison. the u.s. is a large economy with innovation and investment and talent. it also has the possibility of adjustments in interest rates and fiscal policy to sustain the recovery and build along the deficit reduction path. we need to have a deficit reduction path. i think the assumption of gridlock in congress is questionable. i say that with worry about gridlock. look at what happened between the november election and this

year. a lot got done. the republican leadership is committed to deficit reduction. the obama administration is committed to deficit reduction. there was a plan put out there for multi-year deficit reduction action. i think it is premature to say there is gridlock. i believe the u.s. has time to get a serious deficit reduction plan in place. the longer we delay, the greater the risk. >> you are famous for betting against companies. when will you start betting against america? >> i am pretty bullish on america. of all the developed economies i would echo the view that we are in the best position relative to the euro zone and china. but there are a couple of land mines out there.

number one is the risk that congress holds national debt ceiling to a political hostage. america will be coming up against statutory debt limits. these things are normally passed every once in awhile. we get a bit of a log jam and the parties begin to joust over raising that debt ceiling. there has been some talk of that happening. >> that is the kind of things investors could get nervous about. there were panics over state dead in some states. there is a situation where they might default. >> that is a situation that is akin to what you saw in the euro zone. they cannot exchange rates or they cannot print their own

currency. that is much more akin to the situation with the eu and eu members relative to california versus the u.s.. there is one part of the equation that concerns me that i don't hear enough about. that is the political dynamic whereby those denizens of our bread states are going to be a lot less likely to want to use federal dollars to bail out california or new york. i think we end up with political fault lines because one thing is pretty clear as a market participant. people in the municipal debt markets are assuming that the federal government will back state municipal debt. >> there is an interesting thought whether we will get a crisis like the euro zone.

you talk about they could get over congress and they are not gridlock, but all they agreed was for another big tax cut. it seems if you are worried about borrowing the only agreement is about spending more and cutting taxes more. no one sees any evidence of the agreement on this plan when it comes to cutting the deficit. >> there were other agreements between the congress and administration in the last quarter. for example, the controversial issue of don't ask, don't tell. it was actually a fairly widespread coming together. that is what led me to think maybe there will be enough good will to take on politically charged issues and come up with something. i don't think it will be easy. i worry about the debt limit in

the same way as the other commentator. i really think somebody -- some of the municipalities are in trouble, but i think something that is not mentioned -- the u.s. private sector is saving a lot more. the u.s. private sector is buying more of the as a consequence the fiscal deficit stays high, but the current account deficit comes down. that means the u.s. is depending less on foreigners. >> does it make sense to say any tax cut does not have to be matched by any savings? >> absolutely not. that is an ideological condition that is correct -- incorrect.

$1 of tax reduction has the same affect on the deficit as spending increases. >> a wake-up call for a complacent [unintelligible] this book made waves by denouncing western aid to africa. now they warn irrational investment could turn the u.s. into a second division socialist state. >> only one possible future offers much hope. the west [unintelligible] the eve merging economies like china -- emerging economies like china. in that case we lose the economic war. second possibility, tschida

falters. in this scenario they still maintain the 10% annual growth needed to overtake america. and the west stays dominant by default. third, america fights back. we direct vast sums into new technologies and better education. but all this requires money bad americans squandered already. this leads to protectionism. america has not benefited from globalization and will be harmed far less by a debt default. despite the nuclear option, this ends up being most likely. >> we spoke to one economist from the hudson institute. >> you seem to be suggesting

that america is about 2/[unintelligible] >> quite the contrary. my book is is essentially arguing that the u.s. and europe has a chance to turn things around. if you read the subtitles, specifically because there are choices that should be made. that could actually avert the intending dim. >> you talk about defaulting on the debt. you talk about the move to protection that you would not choose. but that might be an option. >> first of all, both default and protectionism are options. in the case of protectionism, the reality is most countries around the world to participate in protectionism.

the case of africana and subsidies against agricultural products is a case in point. we need to put that on the table. i think the notion that somehow protectionism is only linked to china and manipulation of the currency is something that needs to be dispelled. >> is this a cataclysmic you? >> it is excessively caswell mike -- excessively cataclysmic. i am glad to hear you think there is a possibility of redemption. >> always. >> the interesting thing is -- it downplays the problems china has in health care. they don have a system now. they will have to build one. it mentions the west has expensive health care. there is a kind of imbalance.

what troubles me the most is the feeling that it will take massive government to take -- to fix things. this is in need of help. there is no reason the private sector cannot do infrastructure. >> let's take the example of infrastructure. we know private sector companies have stepped in. warren buffett is a loud cry of his involvement in the private sector. that being said, infrastructure is a public good. we all benefit from roads but no one person wants to underwrite it. i would argue that there are some clear public goods such as education. i do argue the private sector

needs to be involved heavily. >> if you look at the deficit problem i don't think there is any question in the past several months we have gone a long way to confronting the problem. the american people are concerned about it. they don't say what to do about it. it shows they are concerned about it. we have a presidential commission which has a sensible report. everyone knows you have to raise taxes and we can do it. we have a policy problem in the process of being solved. we know what we have to do. >> quite the contrary. i think one of the problems across europe is the political cycle encourages governments to focus on the tactical problems. with things like infrastructure and education are much longer

and tend to be solved -- >> [unintelligible] >> i think there is a sense of complacency that pervades the political system. >> i do think many policy-makers are acting quite rationally. they are catering to the political system which does not reward politicians for trying to solve structural problems. >> i am hardly eat and hardly complacent. remember winston churchill said americans get things right after trying everything else. china has huge problems. we have the rule of law and the ability to reverse problem quicker.

if it were true that kind of system -- we would have a soviet union. we don't anymore. we still have an america. i am confident this will get us where we need to go. >> the reality is china will keep growing faster than western countries. the jury is still out whether they will do better. >> if the british prime minister is looking for a government campaign poster, perhaps he can ask for help from his fans. these artists were champions of margaret thatcher and light david cameron -- they like david cameron. they have a new show at a london gallery. their art work contains sexual images. ♪ >> good morning.

nice to meet you. >> in the east end of london i am dropping in on this artist. >> [unintelligible] there is no food in the house. >> it is a little bit like when you are seriously attracted to another person. everything else looks different. food taste different. it is like we are living there. planning lunch, planning many as. we would not be able to do that. we want to be normal and we're at the same time. >> that is a fantastic life. you never have to cook. >> we feel [unintelligible]

>> i take your point. >> here we have the model. >> they have been together a living sculpture ever since they met at art school 40 years ago. they had lived in the same house and even at the same cafes, and never stopped producing their artworks. >> [unintelligible] >> there incredible scavengers of the city around them, finding inspiration in the throwaway. how do you acquire these? >> all over the place. >> [unintelligible]

>> we cannot condone them. what a fantastic collection. >> what drives you? >> we still feel we are not excepted. next time we will. >> you had enormous support in the vast public. we like that very much. we find it rewarding. >> [unintelligible] we want them to understand it. >> do you think he would feel loved if you had some kind of goal from the palace? i cannot see you are quite fond of them. >> [unintelligible] >> you are on record as being

supporters of mrs. thatcher. what do you make of david cameron? >> very short period he is doing very well. -- very sharp. in some way into it is bankrupt. -- england is bankrupt. ♪ >> can you hang on a second? have you noticed you don't see steny -- some many of those [unintelligible] may be it is because they have been around collecting them. the artists have been doing the work of the cleanup campaigners for them. what did you say? postcards from phone boxes and tourist shops all arranged in the same pattern. it was said to represent the mail urethra. >> it is like going through

london and scraping the streets and seeing what is underneath. we are amazed if you walked in the city you can see the eyes of men go towards the telephone boxes. >> now we are having our show. everybody can go to the gallery and see them without being ashamed. >> this is material that would not normally be used in the making of art. this is something they have done since the beginning. there are kids the home for those subjects and materials which are not generally considered the subject matter of court. >> they are working on their next pieces. they have the titles already. >> terrorist, woman, beast.

>> that should keep you busy. >> when you are working or restoring the building next door, people may want to know are you still [unintelligible] can we peek inside the magic? >> we have a mad doctor. >> i can see you in those. >> that is all for this week. goodbye. >> see the news unfold. get the top stories from around the globe. go to bbc.com to experience the in debt expert reporting of --

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