Thread: China Taunts US: ‘Good Old Days’ of Borrowing are Over

China Flays US Over Credit Rating Downgrade

Saturday, 06 Aug 2011 06:42 AM

NEW YORK/SHANGHAI - The United States lost its top-tier AAA credit rating from Standard & Poor's, drawing a blast of criticism on Saturday from its biggest creditor China and deepening investors' alarm over the euro zone's debt crisis.

China said Washington only had itself to blame and called for a new stable global reserve currency.

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's official Xinhua news agency said in a harshly worded commentary.

The S&P cut in the U.S. long-term credit rating by a notch to AA-plus resulted from concerns about the nation's budget deficits and climbing debt burden. The move is likely to eventually raise borrowing costs for the U.S. government, companies and consumers.

By calling the outlook "negative," S&P signalled another downgrade is possible in the next 12 to 18 months.

Worries that the United States was slipping into recession and the euro zone debt crisis was spreading drove a week-long rout in which $2.5 trillion was wiped off global markets.

Better-than-expected U.S. jobs growth in July helped support Wall Street on Friday but stocks slipped back into the red in late trading.

China roundly condemned the United States for its "debt addiction" and "short sighted" political wrangling and said the world needed a new stable global reserve currency.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," the Xinhua commentary said.

It urged the United States to cut military and social welfare expenditure. It also said further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil.

"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country," Xinhua said.

British business minister Vince Cable backed China's call for a new stable global reserve currency but said that for the moment the U.S. dollar remained key.

"This argument's been around a long time and it would be a sensible way for the world to move but it's not something we're going to do overnight," Cable told BBC TV.

Cable has been a vocal critic of the U.S. Congress's protracted arguments to agree a deficit-cutting deal and had warned Washington's sovereign debt rating was at risk.

"In the short run, the United States dollar is the key international currency and although, frankly, the American legislators made a terrible mess of things a few weeks ago, they have now got back on track, they have undertaken to manage their debt in a prudent way," he said.

S&P blamed in part the political gridlock in Washington, saying politics was preventing the United States from addressing its deficit and debt problems.

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Euro zone crisis graphics http://r.reuters.com/hyb65p

Euro zone bond spreads http://r.reuters.com/kus82s

Insider: Pimco and Fidelity http://link.reuters.com/fet92s

Insider TV show on euro crisis http://reut.rs/nDFTKX

BREAKINGVIEWS-An ugly political paralysis ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^^^^^^^^>

While the impact of the rating cut on financial markets when they reopen on Monday may be modest because the decision was expected, the shift may have a major long-term impact for the U.S. standing in the world, the dollar's status, and the global financial system.

"The global system must now adjust to the many implications and uncertainties of the once-unthinkable loss of America's AAA," Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co., which oversees $1.2 trillion in assets, told Reuters.

In Europe, Italy buckled to world pressure by pledging to bring forward cuts to balance the budget in 2013 in return for European Central Bank help with funding.

"We consider it appropriate to introduce an acceleration of the measures which we introduced recently in the fiscal planning law to give us the possibility of reaching our objective of balancing the budget early, by 2013 instead of 2014," Prime Minister Silvio Berlusconi told a news conference after a day of calls with world leaders including German Chancellor Angela Merkel and U.S. Treasury Secretary Timothy Geithner.

Berlusconi said finance ministers from the Group of Seven nations would meet in "just a few days" to seek a common plan of action but his spokesman said later the idea had not yet been agreed with Italy's partners.

The White House said U.S. President Barack Obama had spoken separately with Merkel and French President Nicolas Sarkozy about the euro zone crisis but offered no details.

Discord among EU policymakers over how to stop a disastrous spread of the sovereign debt crisis to Italy and Spain, the euro zone's third and fourth biggest economies, has frustrated investors.

The European Central Bank disappointed markets by buying Irish and Portuguese bonds but not government paper in Italy and Spain where bond yields have blown out this week on fears they may need bailing out.

That now appears to have been a gambit to force Italy to act.

Bank of Spain governor Jose Manuel Gonazalez-Paramo, a member of the ECB's governing council, said he expected Spain to announce further measures on Aug. 19 to ensure it meets its budget austerity targets.

Earlier in the day, China and Japan called for coordinated action to avert a new worldwide crisis sourced to Europe and the United States, as did EU Econmic and Monetary Affairs Commissioner Olli Rehn.

"International policy coordination through the G7 and G20 is of critical importance," Rehn told a news conference, having broken off his vacation and returned to Brussels.

Britain called for a "concerted international effort" to show governments would work together to avert a financial crisis and Brazil also urged unity, saying the world economy was "in a situation of stress."

In BRIC nation India, the prime minister's chief economic adviser said the country's economic growth would not be affected by the cut in the U.S. credit rating.

"I don't think India will be much affected beyond the temporary market jitters and we should still grow at 8.2 pct (this fiscal year)," C.Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, said.

"The U.S. has to show that they have a credible plan of fiscal consolidation and clearly the recent deal is not enough."

(Additional reporting by Reuters bureaux; Editing by Angus MacSwan)

http://www.newsmax.com/Newsfront/ChinaF ... ode=CC76-1

China Taunts US: ‘Good Old Days’ of Borrowing are Over

Saturday, 06 Aug 2011 11:36 AM

China bluntly criticized the United States on Saturday one day after the superpower's credit rating was downgraded, saying the "good old days" of borrowing were over.

Standard & Poor's cut the U.S. long-term credit rating from top-tier AAA by a notch to AA-plus on Friday over concerns about the nation's budget deficits and climbing debt burden.

China -- the United States' biggest creditor -- said Washington only had itself to blame for its plight and called for a new stable global reserve currency.

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's official Xinhua news agency said in a commentary.

After a week which saw $2.5 trillion wiped off global markets, the move deepened investors' concerns of an impending recession in the United States and over the euro zone crisis.

Finance ministers and central bankers of the Group of Seven major industrialized nations will confer by telephone later on Saturday or on Sunday, a senior European diplomatic source said.

The source said the credit rating downgrade had added a global dimension on top of the euro zone debt issue, raising the need for international coordination.

"The G-7 will confer by telephone. It's not yet confirmed whether it will be in one stage or in two stages, tonight and tomorrow," the source said.

French Finance Minister Francois Baroin, who would chair such a meeting under France's G-7 and G-20 presidency, said it was too early to say whether there would be an early G-7 gathering.

In the Xinhua commentary, China scorned the United States for its "debt addiction" and "short sighted" political wrangling.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," it said.

It urged the United States to cut military and social welfare expenditure.

Further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil, it said.

"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country," Xinhua said.

In Washington, U.S. President Barack Obama urged lawmakers on Saturday to set aside partisan politics after the debt battle, saying they must work to put the United States' fiscal house in order and refocus on stimulating its stagnant economy.

S&P blamed the downgrade in part on the political gridlock in Washington, saying politics was preventing the United States from addressing its deficit and debt problems.

Obama called on Congress to back measures to give tax relief to the middle class, extend jobless benefits and pass long-delayed international trade pacts.

"Both parties are going to have to work together on a larger plan to get our nation's finances in order," he said.

"In the long term, the health of our economy depends on it...in the short term, our urgent mission has to be getting this economy growing faster and creating jobs."

STAY COOL

In contrast to the Chinese criticism, France's Baroin said France had faith in the United States' ability to get out of this "difficult period."

Friday's U.S. unemployment numbers were better than expected and so things were heading in the right direction, he said.

"Therefore, one should not dramatize, one needs to remain cool-headed, one should look at the fundamentals," he told France's iTele.

While the impact of the rating cut on financial markets when they reopen on Monday may be modest because the decision was expected, the shift may have a long-term impact for U.S. standing in the world, the dollar's status, and the global financial system.

"I think even if it was half-expected, the consequence will be far reaching," said Ciaran O'Hagan, fixed income strategist at Societe Generale in Paris.

"It will weigh on secure assets. The bigger reaction will be on risky assets, including equities and on agencies (Freddie Mac, Fannie Mae) and states backed directly by the federal government."

But he added: "U.S. Treasurys will remain a benchmark. This is a ship which takes a long time to turn around."

Norbert Barthle, a budget expert for German Chancellor Angela Merkel's conservatives said the downgrade would certainly provoke further turbulence in markets.

"I'm not surprised about the U.S. rating downgrade, rather I am astonished that for weeks, international rating agencies have focused their attention on the European debt situation but not the American one. For a while, there have been clear worries about America's economic woes but also the fact the U.S. is heavily indebted."

NO EARLY ITALIAN ELECTION

In Europe, Italian Prime Minister Silvio Berlusconi on Saturday ruled out calling early elections to stem market panic that has pounded Italian assets and forced his government to bring forward austerity measures.

Italy buckled on Friday to world pressure by pledging to bring forward cuts to balance the budget in 2013 in return for European Central Bank help with funding.

European policy makers are concerned that a debt emergency in the euro zone's third largest economy could completely overwhelm bailout mechanisms set up to help smaller troubled countries like Greece or Ireland.

Italy is due to go to the polls in 2013 but Berlusconi dismissed any suggestion of emulating Spain, where Prime Minister Jose Luis Rodriguez Zapatero has called an early election to tackle the crisis.

"This has absolutely not been talked about," Berlusconi told reporters. "This has never been an option."

The European Union's top economic official praised Italy's decision to accelerate budget-balancing measures and structural economic reforms and said swift implementation was now crucial.

"I strongly support this announcement and call on the authorities to quickly translate it into concrete measures," European Economic and Monetary Affairs Commissioner Olli Rehn told Reuters in a telephone interview.

"This will help to boost potential growth, secure budgetary retrenchment and bolster market confidence," Rehn said.

The European Central Bank sources said the bank remains divided over whether to buy Italian government bonds but even some of those who favor the move say Italy should do more to front-load austerity measures.

Two sources said they expected ECB President Jean-Claude Trichet to hold a teleconference of the bank's policy-setting Governing Council over the weekend to discuss how to respond to turmoil in financial markets and Italy's latest measures.

China and Japan have called for coordinated action to avert a new worldwide financial crisis. India's finance minister Pranab Mukherjee told reporters: "There is no need to unnecessarily press the panic button."

http://www.moneynews.com/StreetTalk/chi ... /id/406339

China Adviser: US to Start QE3 After S&P Rating Cut

Saturday, 06 Aug 2011 08:05 AM

The U.S. Federal Reserve will extend its program to purchase the nation’s debts and stabilize long- term interest rates after Standard & Poor’s downgraded its credit rating, according to an adviser to China’s central bank.

The Fed will roll out quantitative easing 3, a tactic to purchase treasuries, Li Daokui, an adviser to the People’s Bank of China, wrote in his microblog weibo.com. Institutional investors will be forced to sell long-term U.S. debt, which may cause financial turbulence, he wrote.

S&P lowered the U.S. rating one level to AA+ from AAA for the first time yesterday while keeping the outlook at “negative,â€

related

China blasts US over credit rating downgrade
http://www.alipac.us/ftopic-246042-0-da ... rasc-.html

With a AA- rating, China needs to shut the "Hell up!" If it's made in China let it sit on the shelf!