Posted on 02/18/2009 2:09:34 PM PST by Ernest_at_the_Beach
BEIJING, Feb. 18 (Xinhua) -- Increased borrowing by the United States to fund its massive stimulus package could cause the depreciation of U.S. dollar-denominated assets, Chinese economists have told Xinhua.
Being the largest holder of U.S. Treasury securities, China had reason to be concerned about that possible depreciation, the economists said.
The 787 billion U.S. dollar stimulus bill, the American Recovery and Reinvestment Act, is designed to jolt the ailing U.S. economy by providing government spending and tax cuts for both individuals and businesses. U.S. President Barack Obama signed it into law Tuesday.
"To rescue the ailing U.S. economy by increasing government borrowing will create a record-high federal deficit," said Yu Zuyao, economist with the Chinese Academy of Social Sciences, a government think tank.
"This can further lead to catastrophic consequences such as serious inflation and U.S. dollar depreciation," he said Tuesday.
China faced high depreciation risk to its foreign exchange reserves, U.S. Treasury bonds and other U.S. dollar-denominated assets, Yu said.
According to the U.S. Treasury, China held 681.9 billion U.S. dollars worth of U.S. government bonds as of November, and it bought another 14.3 billion U.S. dollars worth in December.
"Buying U.S. government bonds amid an economic downturn, [a purchase] that is not based on the sound performance of the U.S. economy itself, indicates a huge bubble," said Zuo Xiaolei, chief economist of China Galaxy Securities.
CONTRACTION LOOMING
Forecasts for the U.S. economy indicate a contraction this year. For example, the U.S. Congressional Budget Office (CBO) forecast that the economy would contract 2.2 percent year-on-year while unemployment would reach 8.3 percent.
According to the World Bank, the U.S. economy would shrink 0.5 percent in 2009, while the International Monetary Fund (IMF) estimated the decline at 0.7 percent.
To boost economic growth, the U.S. government has increased borrowing to fund its expanding fiscal deficit, Zuo said.
The deficit hit 485.2 billion U.S. dollars in the first three months of the current fiscal year (which started Oct. 1), a record high for a first quarter. That first-quarter deficit also outstripped the record for a full fiscal year, of 455 billion U.S. dollars, set last year, according to the U.S. Treasury.
The CBO projected a 1.2 trillion U.S. dollar deficit for fiscal2009.
However, the huge deficit would not immediately lead to inflation, since banks were likely to curb lending as the financial system remained weak, Zuo said. "It might be two or three years before the huge deficit leads to serious inflation."
Analysts noted that if the stimulus plan didn't accomplish its goal of restarting growth, the U.S. government would have to ease its large fiscal burden by borrowing more and issuing more dollars, instead of relying on economic growth.
RECOVERY UNCERTAIN
The timing of a U.S. economic recovery remains uncertain, with broad signs of deterioration including falling corporate profits, increasing bankruptcies and rising unemployment, according to Zhao Xijun, deputy director of the Institute of Finance and Securities at Renmin University.
According to the IMF, whose forecast is one of the more optimistic, the U.S. economic downturn would end late in 2009. The World Bank doesn't see a rebound until 2010.
Huge Treasury bond issues would exacerbate the depreciation of the U.S. dollar and world wealth. Such developments would be more catastrophic than the global financial crisis, according to Zhang Yansheng, head of the International Economic Research Institute under the National Development and Reform Commission, the chief economic planning body in China.
"The United States should be more responsible in addressing the global financial crisis. The U.S. economic stimulus plans should focus more on maintaining financial and currency stability," Zhang said.
A weaker U.S. dollar would hurt that currency's international status, he said, which would "not be in the interests of the United States and other countries and would exacerbate the crisis."
Said Zuo: "U.S. dollar depreciation is inevitable in the long run. China should prepare and reduce its holdings of U.S. Treasuries to a proper size."
The country should also spend some of its huge foreign exchange reserves to buy more energy and resources, she said.
The Chinese government is already seeking to use its foreign reserves "more actively" and efficiently to boost domestic development amid the global economic crisis.
Fang Shangpu, deputy director of the State Administration of Foreign Exchange, noted Wednesday that the report released by the U.S. Treasury of the amount of government bonds held by China included not only the investment from the reserves, but also from other financial institutions.
It might be a hint that Chinese government is not holding as much U.S. government bonds.
China is managing its foreign exchange reserves with a long-term and strategic view, Fang told a press briefing.
"Whether China is to purchase, and to buy how much of the U.S. government bonds will be decided according to China's need," Fang said.
"We will make judgment based on the principle of ensuring safety and the value of the reserves," Fang said.
China's reserves hit a record 1.95 trillion U.S. dollars at the end of 2008, the largest in the world and far exceeding those of Japan, the second-largest foreign exchange holder with 1.03 trillion U.S. dollars.
|
|
| Editor: Deng Shasha |
“To rescue the ailing U.S. economy by increasing government borrowing will create a record-high federal deficit,” said Yu Zuyao, economist with the Chinese Academy of Social Sciences, a government think tank.
“This can further lead to catastrophic consequences such as serious inflation and U.S. dollar depreciation,” he said Tuesday.
NFS!!!!
See link at #3 also.
Amazing, two countries that have already experienced Communism and it’s disastrous results are trying to save us from making the same mistake and our idiot Prez ignores it.
But that's not stopping you from buying all the US Treasury securities you can get your hands on.
You could buy yen, you could buy gold, you could buy euros; but you're not.
That’s called EPIC IRONY
Well now I’ve heard everything. A communist government (China) trying to slap some economic reality into our presidential usurper—The Marxist Onada.
I’ll bet the AP and the rest of the MSM will run that headline.
I read somewhere recently that the amount of goods we are presently buying from China isn't enough for them to continue to buy our treasuries in the quantity that we require. (They don't have the money anymore)
A catch-22?
China is going to stop lending because we aren't going to be able to pay it back. We are going to experience inflation here. Some people, who haven't lost jobs, are going to stop working so they don't have to pay so much and want on the gravy train. This isn't going to end good.
Sure, China, porkulus is inflationary.
But that’s not stopping you from buying all the US Treasury securities you can get your hands on.
You could buy yen, you could buy gold, you could buy euros; but you’re not.
“these idiots are spending like there is a never-ending well of money”
* * * * * * *
And when they get to the end of it, what next?
(And the taxpayers/serfs are going to get socked along the way.)
Thanks, Ernest.
Ping to article, also check out link at #3.
"The government is expected to offer $2.5 trillion in bonds this year to cover shortfalls. They aren't going to be able raise that much, much less whatever it takes on top of TARP 1.
I don't know if it will be one month or 6 months, but the FED will be stepping in to buy treasuries. China and Japan's exports are collapsing. Not enough dollars to come back and fund our debt. We will either print money to fund our deficit, thru the FED, or we'll just put a halt to the stimulus and deficit spending. We're in deep s***.
The primary brokers of Treasury debt are already experiencing a supply overhang and we're just getting started. They won't be able to get rid of it within months. Go to bloomberg and do a search for "supply overhang". We're looking at weekly auctions of $50 billion +.
"Economists expect reports this week to quash any lingering hope that the economy might be approaching a bottom." - From front page of Marketwatch.
Economically speaking, this is unlike anything the world has ever seen."
Now I’m worried. The communists are worried about communism.
If this empty suit continues to cause more money problems with other countries I’m concerned he may not reach the end of his one time term in office.
Money talks, the rest walks.
This whole world has been upended by the Obama Presidency.
China will buy our debt for two reasons:
Even with the prospect of Argentina-like inflation, US Treasury securities look like the safest investment out there; and,
China will do everything it can to make sure that US consumers are able to purchase Chinese products.
I can even conceive of a situation where China will borrow money just so it can buy US bonds if export revenues continue to fall.
Whether China, and the rest of the world, can buy up $2.5 trillion in Treasury securities this year, well....that’s a different story.
No sympathy for the ChiComs...
They have benefited so much from the bad Free Trade deals...the US has shipped millions of good jobs and wealth to Communist China...and stuck the US with trillions in trade deficits.
China decides to buy our debt...and, by golly, the US may not be able to pay up.
This situation is nothing more than the US running a massive debt, first by shipping jobs to Communist China....then owing trillions to Communist China as they bought US treasuries.
The ChiComs are like the credit card issuer...and the US can’t make the payment.
Which as much means supporters of Free Trade are pretty much fools and idiots. Free Traders were the same ones who claimed “trade deficits are good”. Yeah, right
I am sure we will now hear some moronic solliquy on how Smoot-Hawley caused the Great Depression...blah blah blah.
We know now, that Free Trade had a major impact in this economic downturn...and no Free Trader parsing bad economic theory is going to change that fact.
Next: I predict Communist China starts practicing more “Protectionism”
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.