On August 6, Yahoo carried a Reuters report by Walter Brandimarte and Melanie Lee titled, "China tells U.S. 'good old days' of borrowing are over"* The report states:
"China bluntly criticized the United States on Saturday one day after the superpower's credit rating was downgraded, saying the 'good old days' of borrowing were over.
Standard & Poor's cut the U.S. long-term credit rating from top-tier AAA by a notch to AA-plus on Friday over concerns about the nation's budget deficits and climbing debt burden.
China -- the United States' biggest creditor -- said Washington only had itself to blame for its plight and called for a new stable global reserve currency.
'The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,' China's official Xinhua news agency said in a commentary.
In the Xinhua commentary, China scorned the United States for its 'debt addiction' and 'short sighted' political wrangling.
'China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets,' it said.
It urged the United States to cut military and social welfare expenditure. Further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil, it said.
'International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,' Xinhua said."
I take one exception to this article. The authors state that China is our largest creditor. That is not true. According to the US Treasury, in May 2011** all foreign investment in US securities equaled $4.514T. China owned the largest share of that amount at $1.1598T. The total national debt is over $14T. China's amount represents about 8.25% of that total. Significant, yes, but that does not make them our largest creditor.
However, that being said, should we just ignore what the Xinhua agency said. No, because they make some very valid points. Like, "The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone." Is this just rhetoric? Perhaps, but even our own elected officials agree we cannot continue to support all our programs by borrowing. I find it most interesting that the Chinese are able to recognize that the messes are of our "own making," but we can't.
I think this comment is very telling, "China scorned the United States for its 'debt addiction' and 'short sighted' political wrangling." Do we have a debt addiction? I think the answer is pretty obvious. I like their use of the term "wrangling" when they describe our political process. Webster says wrangle is a verb meaning "to argue; quarrel, esp. noisily." Clearly, on important issues like the debt ceiling debate the parties like to quarrel noisily.
"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country." This is perhaps the most profound contention China makes.
Debt is a form of bondage; it limits one's ability to act and makes one more susceptible to be acted upon. What does China mean by stating the dollar should be subject to "international supervision?" It means losing our sovereignty and the ability to control our own destiny. Greece lost its freedom to act and instead was acted upon by the European Union's demands for austerity measures.
We must not allow ourselves to be complacent and think it could never happen to us.
* The Reuters article can be found at:
http://www.reuters.com/article/2011/08/06/crisis-idUSLDE77504C20110806
** The Department of the Treasury data can be found at:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
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