Archive for July, 2011

The U.S. Debt Impasse and Views from Greater Asia

With the deadline for a U.S. credit default just two weeks away, concern mounts over the consequences of a U.S. government delay or paralysis in resolving the debt ceiling crisis. Overseas, countries holding large sums of U.S. Treasury securities are watching the debate with heightened apprehension and scrutiny. In this post, we examine Chinese, Russian, and Indian views on the U.S. debt impasse.

CHINA

As the U.S.’ largest creditor, China has repeatedly called for compromise in the debt talks while encouraging Washington to protect China’s investments in the U.S. debt market. Meanwhile, Chinese ratings agency Dagong placed the U.S. on negative watch for a possible downgrade, highlighting the increasing role of rating agencies as a political tool to influence the global financial system.

  • I think there is a risk that the U.S. debt default may happen,” said Li Daokui, advisor to the People’s Bank of China. “The result of U.S. debt default is very serious and Republican lawmakers should stop playing with fire.” Li’s comments also underscored that China is constrained by its vast holdings of Treasuries, and that it is best protected against a U.S. debt default if it stands by the United States. “China can promise that we will not sell our holdings of U.S. debt, but the United States must also promise that you will not hurt our interests by guaranteeing the safety of our investment,” he said.

RUSSIA

In Russia, commentary was cynical across the board with allusions to the massive financial disaster that may result in global markets should the U.S. government fail to raise the debt ceiling. (more…)

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