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Huanqiu, China

Intent to Expand US Debt Is Global Plunder

By Yaling Tan

The U.S. budget deficit is not a matter of extreme urgency.

Translated By Stefanie Zhou

8 January 2013

Edited by Natalie Clager

China - Huanqiu - Original Article (Chinese)

At the beginning of this year, the U.S. Congress unsurprisingly passed a motion on the “fiscal cliff.” So far, the fiscal cliff farce has come to a temporary end. However, various interpretations of the fiscal cliff by the outside world currently seem biased. This especially applies to the discussion around its nature, which seems to have deviated from the demands of U.S. national strategy.

The U.S. "fiscal cliff" is a false proposition. The U.S. budget deficit is not a matter of extreme urgency. The financial problems of the U.S. have existed for more than 40 years, during which only the year 2000 had a short-term fiscal surplus. After the international financial crisis in 2008, the U.S. economy went into recession, further expanding its budget deficit.

In 2011 international opinion paid close attention to U.S. bipartisan debate over the budget deficit. The eventual need for the two parties to return to national strategy unsurprisingly led to the debt being raised for the 79th time in the history of the United States.

2012 was the U.S. election year. The U.S. budget deficit was exaggerated as a “fiscal cliff,” and the level of debate over it was also upgraded immediately afterward. However, the U.S. has not really reached the edge of the “cliff” so far because its fiscal and monetary policies are supporting its economic and financial strength effectively.

The U.S. fiscal cliff doesn’t reflect the country’s debt only, but a manifestation of the U.S. global strategic layout. The discussion around the fiscal problems of the U.S. is closely linked to the global expansion of the dollar; the two expansions develop simultaneously.

The international financial markets at the end of last century were limited to financial products, financial institutions and financial systems, with a clear split between the markets. Federal Reserve policy and the implementation of U.S. dollar strategy expanded the scope of international financial markets. Through the dollar’s unique pricing mechanism and the quotation system, more and more areas and markets converged. After oil was included in the international financial markets, commodities, resource products and agricultural products were also included. This expanded the coverage of the dollar and enhanced its hegemony.

The dollar hegemony policy is the basis of the globalization and expansion of the U.S. budget deficit. The Fed's monetary policy appears to be conventional monetary policy of a country's central bank, but due to the unique nature of the dollar’s status, as well as the special nature of the U.S. economy, the objectives of its monetary policy have a global focus, not simply local or domestic.

On the one hand, global strategy decides the distribution and proportion of U.S. money supply: Sixty percent exists in the global context; only 40 percent exists to meet the domestic demand.

On the other hand, the dollar supply increase with changes in the global market configuration is not only a problem to the U.S. economy or a problem of bad public opinion. Essentially there is a shortage in the dollar supply and an increase in the money supply in order to achieve the coverage rate needed for dollar hegemony. It is thus clear that the Fed's monetary policy is not confined to the U.S. The expansion of the U.S. budget deficit reflects the inevitable result, and even gain, of the U.S. globalization strategy.

Thorough consideration is needed when discussing the fiscal cliff. Regarding the special nature and privileges of the dollar, especially in the face of intensifying global currency competition, the U.S. is paying more attention to monetary competitors and strategies, minimizing challenges that the dollar brings to opponents and restructuring the currency system. The future market needs to be vigilant for greater risks, namely the pressures and challenges brought to the world by the dollar hegemony strategy.

The author is the president of the Chinese Foreign Exchange Investment Research Institute



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