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China To US: Put Fiscal House In Order

From an amused Reuters:

China tells U.S. to put fiscal house in order

May 20, 2010

(Reuters) – Europe’s debt crisis has laid bare the fragility of global finances and the United States, too, must tame its fiscal deficit, a senior Chinese official said on Thursday, spelling out Beijing’s concerns before talks with Washington.

With China facing U.S. criticism for yoking its currency to a de facto dollar peg, Assistant Finance Minister Zhu Guangyao shifted attention to Beijing’s own worries about the euro zone’s woes and Washington’s rising indebtedness, ahead of the two countries’ Strategic and Economic Dialogue next week.

China wants "quiet discussions" about exchange rate issues, and loud lobbying will only delay movement on the yuan, Zhu told a news conference.

"External pressure and noise will do nothing but slow the reform process," he said of the yuan exchange rate.

Of course China can continue manipulating their currency to get an unfair trade advantage. Who are we to complain? — With our record of human rights violations in Arizona.

The global economy’s priority should be to steady financial conditions in Europe after Greece’s debt crisis, Zhu said. The United States also needs to control its fiscal settings, he said.

"The European sovereign debt crisis is a challenge not just for the countries that are party to it, such as Greece. In fact, it is a challenge to the stability of the entire international financial market," he said.

"We have noted that President (Barack) Obama and Treasury Secretary (Timothy) Geithner have stressed they are paying attention to the problem of the excessively high U.S. fiscal deficit", Zhu said, noting that it was also "a matter of concern to China."

"We hope that the U.S. fiscal deficit will fall as a proportion of GDP as the economy recovers and reach a sustainable level," said Zhu.

So China has noted our similarity to Greece. And this verbal spanking is not unlike what the EU has been delivering to Greece. At least, in the early stages.

The U.S. budget deficit hit $1.4 trillion in 2009, roughly 10 percent of the economy. The White House projects the deficit this year will reach $1.6 trillion.

Chinese Vice Premier Wang Qishan, a leading economic decision-maker, has had many "frank exchanges" with Geithner about the U.S. debt burden, said Zhu.

Wang and Geithner will lead the economic discussions at the U.S.-China dialogue in Beijing on Monday and Tuesday. Zhu has been heavily involved in preparations for the talks…

China is the world’s largest holder of U.S. Treasuries with $895.2 billion. It added to its stockpile in March for the first time in seven months.

Chinese officials, including Premier Wen Jiabao, last year prodded the Obama administration to avoid pursuing fiscal policies that could erode the value of those treasury holdings.

It didn’t work. Instead, Mr. Obama ballooned the deficit at a rate never before even imagined.

No wonder the Chinese stopped buying our debt.

Geithner will tell Chinese officials that the United States intends to get its deficits down but only after recovery is fully established, a Treasury official said on Wednesday

Now we know why Mr. Obama hasn’t declared the recession officially over. In fact, if it means his having to stop spending like a drunken sailor, it might never be over.

This article was posted by Steve on Thursday, May 20th, 2010. Comments are currently closed.

3 Responses to “China To US: Put Fiscal House In Order”

  1. BannedbytheTaliban says:

    So what are we spending $1.6 trillion on in addition to the $1 trillion we spend that is covered by taxes? That kind of money can buy a lot of unicorns.

  2. Petronius says:

    China “prodded the Obama administration to avoid pursuing fiscal policies that could erode the value of those treasury holdings.”

    I never thought I would live to see the day when America was lectured by Red China on capitalism and fiscal responsibility.

    But here we are. China owns America. Or, more precisely, America is heavily –– irredeemably –– indebted to China.

    Wealth is shifting from West to East. China has trillions in reserves, and the USA is broke and borrowing on all sides.

    We are embarking upon a new era, an era when nearly all industrialized countries in the West are poised on the brink of bankruptcy. The only important exceptions are the oil and resource countries, such as Canada, Australia, and Norway.

    We are currently witnessing the attempt by several near-bankrupt countries to rescue Greece from bankruptcy. These countries –– Germany, the USA, Britain, Italy, Spain –– will not be paid back.

    When they are not paid back, they will find their credit is impaired. They will face higher interest rates in the international bond markets, and economic decline, and ultimately they will themselves become in need of rescue. Unless another country steps forward to bail them out, they will in turn become bankrupt.

    The Germans are in better shape than most, and they may prop up the euro for a time, but –– without deep structural change –– it cannot last indefinitely.

    One country after another will default. Default or inflate. Those are the only choices.

    But neither choice is acceptable to China. If China is going to continue to extend America credit, China will demand something of value in return.

    If China demands higher interest rates, it will drive us deeper into recession. It may cripple the American economy beyond repair.

    But if there is one thing that we can count on in days to come, it is this: China is not going to be “taking a haircut.”

    The socialist policies that have led us to this end are not being changed. They are not even under serious review. Even Greece is not undertaking any real restructuring.

    Western leaders lack the political will to reduce deficit spending and entitlement programs. Even worse, they rush headlong into greater debt with their leftist ideology and policies.

    And, as we have seen here in the USA, Nerobama and his allies in Congress have increased the national debt to levels that were unthinkable a few months ago, engaged in insane deficit spending, and added a huge new entitlement for Obamacare. Their only response to the coming debt crisis has been the same old Liberal formula: spend, borrow, tax, spend, borrow, tax, spend, spend, spend.

    Indeed, we see that those Tea Party people who question this policy are everywhere reviled as astroturfers, as racists and angry extremists.

    The socialist leaders of these Western countries have failed miserably to govern during times of relative prosperity. How on earth will they govern during the hard times ahead?

    The Western experiment in socialism and fiscal irresponsibility is almost played out. The socialists are running out of other people’s money.

    We have probably already passed the point-of-no-return. We have probably entered an era of runaway debt, growing debt fueled by ever-mounting interest on old debt.

    As proreason has often pointed out here on S&L, the November 2010 election is crucial.

    The precise results of the coming debt crisis, and the timing of those results, are unpredictable, but they will not be pretty. We should probably expect inflation rather than default. This means hyperinflation, curtailment of private investment, economic stagnation, followed by economic decline, wealth destruction, redistribution of wealth from creditors to debtors, hardship for pensioners and others on fixed incomes, unemployment, hunger, social unrest, violence, and drastic political change.

    But this time will be different. Unlike past experiences in Greece, Zimbabwe, Argentina, and Weimar Germany, the damage will not be limited to a single country. This time, most of the industrial countries in the West will be involved. I cannot imagine what that will be like.

    As China collects the interest on America’s debt, China may look for smart ways to reinvest those dollars back into America. The Chinese are resource hungry. We might therefore imagine a future for America as a colony of Red China. We may be approaching an era when America’s most valuable resources –– farms and ranches, coal, natural gas, timber, and the stocks and bonds of multinational food, resource, and energy companies –– are owned by China.

  3. TwilightZoned says:

    If (perhaps when) the European countries fall like dominos, so goes the U.S. I most certainly don’t see China seeing us as “too big to fail”. Petronius makes a very good point of “owned by China”; an idea I have also been pondering.

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