From the Wall Street Journal:
In a biting commentary, [Xinhua] urged the international community to improve supervision over the U.S. dollar and said the world may need “a new, stable and secured global reserve currency to avert a catastrophe caused by any single country.”
“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets,”
The remarks came after the Standard & Poor’s Friday removed the U.S. government from the list of risk-free borrowers, citing concern about the rising burden of long-term federal debt.
China, with over $1 trillion invested in U.S. Treasurys, is among those that would be most immediately affected by any U.S. default or downgrade.
Yesterday, I talked about the potential dangers of enacting fiscal and monetary policies that anger creditors. The Chinese government have made it transparently clear that they are unhappy with America’s current monetary policy. Given that America’s economy is very much dependent on China’s manufacturing output, there is a potential for quite a mess.
While Russia is not a manufacturing powerhouse like China, it nonetheless has to hold dollars to access international markets, especially commodities markets such as oil, and precious metals. So it is no surprise that everyone’s favourite post-Soviet despot has made public his feelings on America’s monetary policy:
They are living beyond their means and shifting a part of the weight of their problems to the world economy. They are living like parasites off the global economy and their monopoly of the dollar. If [in America] there is a systemic malfunction, this will affect everyone. Countries like Russia and China hold a significant part of their reserves in American securities. There should be other reserve currencies.
Will Putin act on those words?
We shall see.
George Monbiot wrote yesterday:
There are two ways of cutting a deficit: raising taxes or reducing spending. Raising taxes means taking money from the rich. Cutting spending means taking money from the poor. Not in all cases of course: some taxation is regressive; some state spending takes money from ordinary citizens and gives it to banks, arms companies, oil barons and farmers. But in most cases the state transfers wealth from rich to poor, while tax cuts shift it from poor to rich.
Is that even true? In an earlier post, I made the case that through the stimulus package, government was stealing from the poor and giving to the rich — predominantly the financial industry. But the problem is far greater in terms of the arms industry. Government defines itself as the legitimate monopoly on violence and defence in most countries: this means that the arms industry’s main (and often only) client is Government. Now, I am not denying that nations should be capable of self-defence. But the modern state transfers massive wealth from poor and middle class taxpayers and into the hands of defence contractors. Let’s look at a great graphic from the War Resisters’ League showing where your income tax really went in 2009:
The Elephant in the Room?
I spent the last three days writing blog posts on economics without ever mentioning the “hot button” issue of the day: the United States Treasury running out of juice, and having to yet again raise its debt limit. For those with a short memory, or a lack of interest, here’s a figure of the U.S. debt, first in absolute terms: