Investors aren’t taking crisis threat seriously enough

October 16, 2013, 1:23 AM UTC
Shriti Vadera

FORTUNE — Here’s a bracingly frank view of our unfolding debt default crisis from across the pond: “It’s one of the most shocking things I’ve ever seen.”

That assessment comes courtesy of Shriti Vadera, a top economic adviser to then-British prime minister Gordon Brown. Vadera helped steer the British response to the 2008 financial collapse, so she knows what an economic shock looks like. Still, she told Fortune’s Nina Easton at the magazine’s Most Powerful Women Summit on Tuesday that the consequences of a debt default are “unthinkable.” She meant that literally. “I don’t think anybody has the foggiest idea” precisely how a default would unfold.

Vadera says the relative calm about the crisis presiding now in the global markets owes only to investors abroad not taking the threat seriously enough. “U.S. Treasuries are considered to be the safest asset on the planet … You’re talking about a really anarchic situation,” she said. “The hope is nobody could possibly be that negligent or stupid or irresponsible.”

MORE: Complete coverage of the Most Powerful Women Summit

And yet even if a last-minute deal is struck to avert a technical default, Vadera contends the brinkmanship that’s become the norm in our political debate is already wreaking long-term damage to our economic standing. “The U.S. has the privilege of using the global reserve currency of the world. It’s a privilege, not a right,” she said, adding major powers like China are likely already moving to drop their reserves of American debt.

Which is not to say the rest of the world doesn’t have its own problems. Vadera delivered a world tour of economic trouble spots: India (“can’t building anything to save its life,”); China (“the only country that’s going to get old before it gets rich,”); France (growth that’s “bumping along the bottom” and has no political will to tackle necessary social welfare reforms); Germany (great employment levels, but too many of those jobs are all low-skill and low-wage); and the United Kingdom (suffering through the slowest recovery in its history).

Meanwhile, there are encouraging signs here at home. For example, our innovation muscle and the cheap energy guaranteed by the shale boom have translated into a manufacturing renaissance that’s gaining traction. If only we can get out of our own way.