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  • » 07/15/2011, 00.00

    CHINA – UNITED STATES

    Beijing warns Washington, a default would be a “disaster” for everyone



    China is the largest holder of US sovereign debt with more than US$ 1.1 trillion. However, the possibility of a default is increasing. If the White House and Congressional Republics do not find a solution, the world’s economy could be hit hard.
    Beijing (AsiaNews) – The United States must protect "the interests of investors” and Republicans must stop "playing with fire", Chinese government officials said with regards to the debate in the United States over that country’s debt. In fact, 2 August and the spectre of a US default are approaching and the consequences for the world economy are unimaginable.

    At present, China hold US$ 1.153 trillion worth of US treasury bonds and is by far the largest investor in US debt. A default would endanger Sino-US relations, especially in view of China’s huge industrial capacity, which is heavily dependent on the US market.

    Meanwhile in Washington, two views on how to avoid default are fighting it out. Congressional Democrats and President Obama want to raise taxes on the rich and corporations and cut military spending. Republicans want instead to force the federal government to cut spending to reduce costs, like those for health care and unemployment benefits.

    In the absence of an agreement, some Republicans have proposed a “technical default”, a gimmick used by some South American nations to allow a temporary but predetermined default on a country’s foreign debt, which would stop interest payments to investors. Some in the United States now see this as a possible solution, one that would be disastrous for China however.

    "We hope the US government adopts responsible policy and measures," Foreign Ministry spokesman Hong Lei told a briefing.

    Yu Bin, a senior official with the ministerial-level State Council Development Research Centre, said that China has become conscious that the US economy was "worse than expected", that “The US economy is a worry,” and that Washington must get its house in order.

    Tensions are high in the United States as well. The existing debt ceiling of US$ 14.3 trillion (as required by law) must be raised. For US Treasury Secretary Timothy Geithner, the time to act is now.

    Speaking before a Senate committee, US Federal Reserve Chairman Ben Bernanke said that the economy would face “calamity” if an agreement were not reached.
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    See also

    23/09/2010 CHINA – UNITED STATES
    Wen warns, touching the yuan would cause unrest in China
    Unemployment and social instability would follow a revaluation of the Chinese currency, according to the Chinese premier. Despite differences of opinion, Washington and Beijing will nevertheless rise or fall together because of the degree of integration of their economies.

    25/07/2011 ASIA – CHINA – UNITED STATES
    As US public debt worries Asia, shanghai index plunges
    Asian nations believe Washington will overcome the current impasse between President Obama and Congress, but are still afraid that US debt will be downgraded. US treasury bills have always been safe investments for Asia. European shares are down as well.

    20/01/2011 CHINA – UNITED STATES
    Despite the food and the smiles, Obama and Hu make no progress
    The meeting between the two leaders saw little action. Hu Jintao’s acknowledgment that China falls short on human rights is the same old news that is repeated at every foreign visit. On economic matters, the leaders decided not to decide. In the meantime, the yuan gains a bit against the US dollar.

    30/09/2008 ASIA - U.S.
    Depth of the abyss of economic, social, political chaos
    The worldwide financial situation was disastrous even before the rejection of the U.S. emergency plan. The Paulson plan for 700 billion dollars is enormous (432,10% of the total U.S. deficit), but it pales in comparison to the mountain of financial paper in circulation, well above 20% of global economic production.

    25/11/2008 ASIA
    The way out of the crisis is neither Left nor Right
    Stake-holders and decision-makers are failing to see that the crisis of 2008 is worst and more complex that the crisis of 1929. Solutions trumped so far benefit only the banks, but do not generate wealth. The US dollar could become junk paper.



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