US Bonds May Turn into Useless Pieces of Paper at Any Time

The Democratic Party and Republican Party in the U.S. fought until the eleventh hour on raising the debt ceiling before finally reaching a compromise before the final deadline this Thursday, thus avoiding a U.S. technical default. But the U.S. debt crisis this time has caused the international community, including creditor nations such as China and Japan, to break out in a cold sweat. Now, while the international community and America’s creditor nations are secretly rejoicing, they have been forced to be wary once again. U.S. finances are seriously imbalanced, sparking a completely “politicized” war over the debt ceiling between the two parties, which also has the risk of being “prolonged.” The U.S. bonds in their hands, worth hundreds of billions or even trillions of U.S. dollars, can turn into useless pieces of paper at any time.

The Major Foreign Holders of Treasury Securities data recently published by the U.S. Treasury shows that as of July this year, China owns $1.28 trillion of Treasury securities and is the biggest foreign holder of such bonds, with those bonds making up a third of China’s foreign reserves of $3.66 trillion. So, as the U.S. government was shut down and the Democrats and Republicans were unable to come to a compromise on the debt ceiling negotiations quickly, China’s worries increased with each passing day. During the East Asia Summit in Brunei, Chinese Premier Li Keqiang used the opportunity to meet with U.S. Secretary of State John Kerry to express China’s worries, stating that China was following the U.S. debt ceiling problem closely. Chinese Vice Finance Minister Zhu Guangyao stated that China had asked the U.S. to take practical measures to solve the fight over the debt ceiling, thereby preventing the U.S. from defaulting, ensuring the safety of Chinese investments in the U.S.

So, it was a good thing that the Democrats and Republicans finally reached a compromise before Thursday’s deadline, ending this “political farce” that has very much annoyed the international community and the American public. At the same time, as President Obama appoints Vice Chair of the Board of Governors of the Federal Reserve Janet Yellen to succeed Ben Bernanke as chairperson, outsiders believe that U.S. currency policy will not change suddenly and that the U.S. as a funds “shelter” and the position of the U.S. dollar as a reserve currency will not change.

However, the game being played by the two parties directly affects next year’s House of Representatives midterm elections, so when the debt ceiling is reached next year, the two parties may once again fight tooth and nail over this topic, and the global financial market will fluctuate once more. From the prolongation of the fight over the U.S. debt ceiling, the international community, especially America’s creditor nations such as China, must learn from past lessons and be prepared beforehand to seek a safe way out for their foreign reserves.