Imperialist U.S. Not Worried about Increasing Debt
Published in China Times
(Taiwan) on 1 August 2011
by Lu Shaowei (link to original)
(Taiwan) on 1 August 2011
by Lu Shaowei (link to original)
Translated from
by Sharon Chiao.
Edited by Hoishan Chan.
To raise the debt ceiling, will America have to default on its debt? This situation has captured the attention of the whole world. Each country’s stock market suffered shocks, and the U.S. dollar depreciated; however, the U.S. national debt did not decrease. Everyone is tense and anxious. However, Americans can only sit and wait as Congress and the White House slowly reach an agreement. The United States has perfected the idea of not worrying about increasing its debt to pay off its debt.
America’s national debt increases each year; from the government down to its citizens, everyone takes pleasure in borrowing and spending money. Before the financial crisis, the private savings rate was already in the negatives. The U.S. government has raised the debt ceiling. But within this past decade, the debt ceiling has been raised many times. However, the rest of the world does not mind, in fact they are happy that the United States is “providing the momentum for the growth of the global economy.”
Previous debt ceiling increases have been silently passed, but this time, because relations between Democrats and Republicans are strained, Congress and the White House have been unable to reach an agreement. This is why there is a rise in concern over the “U.S. debt default.” Actually, there are not many differences between this situation and previous situations — the U.S. government was similarly in heavy debt, there were no signs of slowing the annual budget deficit. However, the United States is the world’s largest economy, and is the only country with “trinity” supremacy — supremacy in political, economic and military affairs. Although the government is responsible for more than $14 trillion, the annual GDP is more than $14 trillion. All America has to do is intentionally repay its debt by cutting the budget a little and increasing taxes a little, then it would be difficult for the United States to have to default.
What causes global creditors to be even more embarrassed is that: if Americans really want to shamelessly default, then the rest of the world would not be able to do anything about it. The United States is not the size of Greece; other countries can use different means of forcing Greece to submit. From Greece’s perspective, whether or not it can get relief payments is the key to its economic survival; the entire country of Greece is worried and there are constant conflicts.
But Americans on the other hand, can sit back and wait; they aren’t afraid of anything. From a global perspective, the United States. is still very strong; it is still the best safe haven for funds; the U.S. bond market is the largest and has the most fluidity, thus making it an ideal investment target. China, the U.S.’s greatest creditor, has $1.1 trillion of government bonds. Upon sensing that even after the financial crisis holding U.S. bonds still carries risks, China reduced its holdings of U.S. government bonds to $800 billion. However, after a few years, holders of American government bonds have slowly increased because there aren’t many other options. Honestly speaking, the “shock” index that Chinese officials will receive far exceeds that of U.S. officials if America actually defaults.
Although the World Bank has warned that the United States is “playing with fire” and “will cause a huge market catastrophe” if the U.S. does not reach an agreement soon, the U.S. is engaged in the second wave of quantitative easing, thus making this catastrophe everyone else’s problem, it can only benefit the U.S. Although the White House has put forth efforts to reach an agreement, however, in reality no one is really anxious.
It’s hard to imagine that the United States — a superpower, economic giant and a major player in the shaping of market confidence — has actually ended up on the path of national debt default. However, in reality, this much debt is hard to clear without defaulting. There is a plus for countries choosing to default — it reduces debtors’ responsibility and debtors can leave the morass of debt early. From the creditors’ point of view, having a debtor default can also be considered a “market penalty,” a form of punishment for originally trusting and constantly lending money to others. From this point of view, Greece should actually have partially defaulted, or else it’d never be able to return all its money in eight lifetimes. Iceland repudiated some of its foreign debt so that it could slowly recover.
America is a big country and it would be embarrassing for it to openly default. However, “secretly defaulting” is a possibility. U.S. debt is based on the value of the U.S. dollar, thus if the dollar depreciates a bit or if it experiences inflation, it would be an effective and implicit form of debt relief. America actually has already done this! Even so, everyone continues to buy U.S. bonds.
America’s national debt increases each year; from the government down to its citizens, everyone takes pleasure in borrowing and spending money. Before the financial crisis, the private savings rate was already in the negatives. The U.S. government has raised the debt ceiling. But within this past decade, the debt ceiling has been raised many times. However, the rest of the world does not mind, in fact they are happy that the United States is “providing the momentum for the growth of the global economy.”
Previous debt ceiling increases have been silently passed, but this time, because relations between Democrats and Republicans are strained, Congress and the White House have been unable to reach an agreement. This is why there is a rise in concern over the “U.S. debt default.” Actually, there are not many differences between this situation and previous situations — the U.S. government was similarly in heavy debt, there were no signs of slowing the annual budget deficit. However, the United States is the world’s largest economy, and is the only country with “trinity” supremacy — supremacy in political, economic and military affairs. Although the government is responsible for more than $14 trillion, the annual GDP is more than $14 trillion. All America has to do is intentionally repay its debt by cutting the budget a little and increasing taxes a little, then it would be difficult for the United States to have to default.
What causes global creditors to be even more embarrassed is that: if Americans really want to shamelessly default, then the rest of the world would not be able to do anything about it. The United States is not the size of Greece; other countries can use different means of forcing Greece to submit. From Greece’s perspective, whether or not it can get relief payments is the key to its economic survival; the entire country of Greece is worried and there are constant conflicts.
But Americans on the other hand, can sit back and wait; they aren’t afraid of anything. From a global perspective, the United States. is still very strong; it is still the best safe haven for funds; the U.S. bond market is the largest and has the most fluidity, thus making it an ideal investment target. China, the U.S.’s greatest creditor, has $1.1 trillion of government bonds. Upon sensing that even after the financial crisis holding U.S. bonds still carries risks, China reduced its holdings of U.S. government bonds to $800 billion. However, after a few years, holders of American government bonds have slowly increased because there aren’t many other options. Honestly speaking, the “shock” index that Chinese officials will receive far exceeds that of U.S. officials if America actually defaults.
Although the World Bank has warned that the United States is “playing with fire” and “will cause a huge market catastrophe” if the U.S. does not reach an agreement soon, the U.S. is engaged in the second wave of quantitative easing, thus making this catastrophe everyone else’s problem, it can only benefit the U.S. Although the White House has put forth efforts to reach an agreement, however, in reality no one is really anxious.
It’s hard to imagine that the United States — a superpower, economic giant and a major player in the shaping of market confidence — has actually ended up on the path of national debt default. However, in reality, this much debt is hard to clear without defaulting. There is a plus for countries choosing to default — it reduces debtors’ responsibility and debtors can leave the morass of debt early. From the creditors’ point of view, having a debtor default can also be considered a “market penalty,” a form of punishment for originally trusting and constantly lending money to others. From this point of view, Greece should actually have partially defaulted, or else it’d never be able to return all its money in eight lifetimes. Iceland repudiated some of its foreign debt so that it could slowly recover.
America is a big country and it would be embarrassing for it to openly default. However, “secretly defaulting” is a possibility. U.S. debt is based on the value of the U.S. dollar, thus if the dollar depreciates a bit or if it experiences inflation, it would be an effective and implicit form of debt relief. America actually has already done this! Even so, everyone continues to buy U.S. bonds.