Biden in Beijing
Vice President Biden’s diplomacy tour to China got off to a rocky start. First, he attended a “goodwill” basketball game that turned into an embarrassing brawl between the Georgetown Hoyas and China’s Bayi Rockets in Beijing. Then Biden’s meeting with China’s vice president, Xi Jinping, was hastily brought to an end by Chinese foreign ministry press handlers who manhandled U.S. press and staff members out of the room while Biden was still speaking.
Underneath the blatant tensions were worries about the U.S. economy and its mounting debt. Stock markets around the world have been rattled since the Standard & Poor’s downgraded U.S. long-term debt from Triple A on August 5. Just days before that announcement, China’s Dagong Global Credit Rating agency, which has recently started rating sovereign debt, downgraded its rating of U.S. debt from A+ to A with a negative outlook, putting it on par with Russia and South Africa.
It’s worth noting that Dagong has faced skepticism about its rating credentials, especially after it had given a positive rating to a government agency impacted by a recent fatal train accident in China. Nevertheless, Dagong’s reasons for the downgrade are relevant and rational. Its primary concerns are as follows:
1. An unstable political situation due to partisan fights. Throughout the standoff on the debt limit, Dagong said, neither party showed consideration for the general interest and left “the world in terror.” Political differences has acted “as a curb on the decision-making efficiency” ever since the midterm elections.
2. The U.S. sovereign debt crisis will deepen and continue a declining trend. In part, this is because there is a “severe imbalance between the real wealth creation capability and huge national consumption.” (I take this to mean that U.S. GDP growth is overly reliant on consumption while weak on everything else.)
3. Expected annual deficits have been cut, but debt continues to grow. Dagong cites an eight-year difference between the deficit cut objectives laid out in the new budget control law and the increase in the debt limit through 2013. (I take this to mean that Congress’s plan to cut deficits extends to the out years while it has increased debt in the near term.) Furthermore, Dagong astutely notes that “besides, the deficit cut plan rests on a framework agreement only, lacking credible and feasible policy support.” (In other words, there are loopholes in the plan to cut deficits.) Dagong suggests a $4 trillion, five-year deficit plan is in order.
4. The U.S. has no plan or driving forces to produce national economic growth, making it impossible to reverse the national debt problem. Dagong predicts the Federal Reserve will approve further stimulus with a QE3 policy, which would affect the global economy and shake the status of the dollar.
Underneath the blatant tensions were worries about the U.S. economy and its mounting debt. Stock markets around the world have been rattled since the Standard & Poor’s downgraded U.S. long-term debt from Triple A on August 5. Just days before that announcement, China’s Dagong Global Credit Rating agency, which has recently started rating sovereign debt, downgraded its rating of U.S. debt from A+ to A with a negative outlook, putting it on par with Russia and South Africa.
It’s worth noting that Dagong has faced skepticism about its rating credentials, especially after it had given a positive rating to a government agency impacted by a recent fatal train accident in China. Nevertheless, Dagong’s reasons for the downgrade are relevant and rational. Its primary concerns are as follows:
1. An unstable political situation due to partisan fights. Throughout the standoff on the debt limit, Dagong said, neither party showed consideration for the general interest and left “the world in terror.” Political differences has acted “as a curb on the decision-making efficiency” ever since the midterm elections.
2. The U.S. sovereign debt crisis will deepen and continue a declining trend. In part, this is because there is a “severe imbalance between the real wealth creation capability and huge national consumption.” (I take this to mean that U.S. GDP growth is overly reliant on consumption while weak on everything else.)
3. Expected annual deficits have been cut, but debt continues to grow. Dagong cites an eight-year difference between the deficit cut objectives laid out in the new budget control law and the increase in the debt limit through 2013. (I take this to mean that Congress’s plan to cut deficits extends to the out years while it has increased debt in the near term.) Furthermore, Dagong astutely notes that “besides, the deficit cut plan rests on a framework agreement only, lacking credible and feasible policy support.” (In other words, there are loopholes in the plan to cut deficits.) Dagong suggests a $4 trillion, five-year deficit plan is in order.
4. The U.S. has no plan or driving forces to produce national economic growth, making it impossible to reverse the national debt problem. Dagong predicts the Federal Reserve will approve further stimulus with a QE3 policy, which would affect the global economy and shake the status of the dollar.
posted by One More Thought... at 6:33 PM
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