On Friday, Chinese officials indicated that the debt deal as it stands in the United States and Europe is not sufficient to stave off the future consequences of an economic meltdown. They are urging the countries to take “concrete steps” toward improving their economies.
The Xinhua news agency wrote of the dire economic situation the United State’s is in, “The only way the Americans have come up with to improve economic growth has been to take on new loans to repay the old ones…. To eat May’s grain in April, however, will never be a permanent solution to a problem.”
Despite their massive holdings of United States debt, China indicated that the despite reaching a temporary deal on the US’ borrowing limit, the impending “debt bomb” has not been defused. As a result, China is threatening to bolster its holdings by diversifying in something other than US dollars.
The emergency bill signed by President Obama on Tuesday, is, apparently, not enough to stave off ire of the world. As the world watched the debt ceiling debate and waited with baited breath as the purported deadline loomed, Congress worked with the President to make sure the world’s most important economy didn’t collapse. And while the debt ceiling increase “bill” ended up being a giant turd sandwich, at least we didn’t default… right? Nevertheless, the economic precipice analysts were claiming the American machine was careening toward made the world nervous enough to begin thinking (perhaps correctly) that the biggest obstacle to the US getting her economic house in order is her government. Alas, while the Republicans are being blamed by many for the holdup, the truth is, they were the only ones pushing for real cuts. And while most other countries and analysts are livid about the contentious process, the real criticisms are over the incredible spending increases that have been the trademark of the Obama administration.
Beijings comments on the subsequent 500 drop in the Dow on Thursday drew back the curtain on “the plight of western economies and their deep structural defects.” There is little doubt that the debt financing of the last 60 years is responsible for much of our current fiscal hardship, though it’s ironic that a country that is equally as guilty of currency manipulation might accuse the United States of fiscal malfeasance.
According to the same report, Beijing declared that the United States can save itself “Only by introducing reform.” Alas, while the statement might be correct, it’s weird to think we might take advice about our debt from the country whose holdings are incredibly homogenous. Their poorly diversified holdings rely 100% on the United States solvency. And as I once heard on National Public Radio’s (one of the few analyses I have ever agreed with), when you owe the bank a million dollars, they own you, but when you owe the bank a trillion dollars, you own the bank.