Sunday, August 7, 2011

US downgrade: Communist China is one unhappy camper!

Communist China owns over $1.1 trillion of US treasury debt and it is not a happy camper!

As the largest holder of US treasury debt of all non-US countries, Communist China has a large stake in the future viability of the US economy.

Similarly the United States, with Communist China as the greatest foreign benefactor of our deficit spending habit, has a large need to keep that country coming back to buy more of our bonds.

Note: I am using the name Communist China rather than simply China in order to highlight just how ironic it is that the largest and most important capitalist economy in the world (the US) is now dependent on one of the few remaining communist country's in the world (China) for its economic viability.

China states its unhappiness with US politics and US spending habits in no uncertain terms!

China has commented on US fiscal policy before, but in light of the fact that S&P finally downgraded the US to AA+, Washington should probably start to take it a little more seriously.

We cannot continue airing any more episodes of the Washington Dysfunction Chronicles - Kicking the can down the road edition to the rest of the world if we want to maintain any semblance of economic credibility, keeping them buying our debt!

From Xinhua, the official Chinese news agency, “… Though the U.S. Treasury promptly challenged the unprecedented downgrade, many outside the United States believe the credit rating cut is an overdue bill that America has to pay for its own debt addition and the short-sighted political wrangling in Washington.”

A little self-discipline would not be too uncomfortable for the United States, the world’s largest economy and issuer of international reserve currency, to bear.

On Wednesday, Chinese credit rating agency Dagong Global announced it would degrade U.S. treasury bonds for the second time since last year. Xinhua said Dagong’s move was, at the time, met “with a sense of arrogance and cynicism from some Western commentators.

Now S&P has proved what its Chinese counterpart has done is nothing but telling the global investors the ugly truth,” the commentary said calling for Americans “to do some serious soul-searching to bring their country back from a potential financial abyss…” (Source)

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