Obama and GOP play chicken over U.S. debt
- By Alexandre Lesto
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China.org.cn, July 6, 2011
Enter China, holder of $1.1 trillion of the U.S. government's debt. The vantage point of the Chinese government, and of the rest of the world, can only be one of alarm at the U.S. government's domestic game of chicken, as Republicans put pressure on Democrats in the wake of the 2012 presidential elections.
A U.S. default on interest payments at this time could have severe economic and political ramifications for the Chinese. Relations with Beijing are already strained and, whether or not there is any truth to it, the Chinese public has become tired of hearing the U.S. condemning Chinese monetary policy on the yuan for its economic problems.
Li Daokui, an advisor to China's central bank, recently warned the United States to stop 'playing with fire' regarding its debt. China's position has been that of an attentive but increasingly worried lender, with the country progressively trimming its holdings of U.S. Treasuries over the last few months. And it makes sense. China is the largest foreign owner of U.S. government debt, and in the event of a U.S. default and a drop in dollar value, how much will that $1.1 trillion be worth?
But it's not going to happen, right? All this is merely a political game, we reassure ourselves, which while damaging to the image of American politics, will ultimately end with an agreement on increasing the debt ceiling, right?
One can hope. Unfortunately, it turns out an increasing number of Republicans now believe defaulting would not be as dramatic as initially purported. Something that was unthinkable merely weeks ago is now being seriously contemplated. They argue a technical default, leading to a short delay on payments, would unify Congress and the current administration into solving the long-term fiscal issues of the United States, which is analogous to a struggling student purposely bombing an exam in order to face the fact he's having difficulties.
Global economies are tied to one another, and the debate over the debt ceiling is yet another example of domestic politics affecting the international stage. For China, there's very little to be done but stand back, watch and worry.
Rarely before have the Republicans and Democrats been so far from any spirit of compromise and bipartisanship. With the 2012 elections clearly playing a role, it is not uncommon for either side to disagree with the other on basic principle or purposefully raise the stakes. And the stakes are high.
As it stands, the current administration has a lot at play and a lot to lose. They are at antipodes with a GOP that knows it can get something, but is divided over what it wants. All the while, the rest of the world, especially China, is looking apprehensively at its bundles of dollars as the United States' two political hands fight over a financial detonator that could, on Aug. 2, lead to another recession – at home and abroad.
Let's hope that by that time, they will have come to an agreement.
The author is an American currently living and working in Beijing.
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn
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