China blasts U.S. over debt problems, calls for dollar oversight
Baku, August 6 (AZERTAC). 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 gave its first official comments on the United States losing its gilded AAA long-term credit rating from Standard & Poor`s.
“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,” Xinhua said.
China also urged the United States to apply “common sense” to “cure its addiction to debts” by cutting military and social welfare expenditure.
“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,” Xinhua wrote.
China also said further credit downgrades would very likely undermine the world economic recovery and trigger fresh rounds of financial turmoil.
Chinese economists said the U.S. credit rating downgrade posed a great risk to financial markets and they expected it to prompt China, the world`s biggest holder of U.S. Treasuries, to accelerate the diversification of its holdings.
S&P cut the United States` rating to AA-plus on concerns over the government`s budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the U.S. government, companies and consumers.
“There would be chaos in international financial markets at least in the short term. The most direct impact for China would be the hit on its reserves. The value of China`s dollar investments will fall and the shrinking effect may be great,” said Li Jie, a director at the Reserves Research Institute at the Central University of Finance and Economics.
Earlier this week, China had urged Washington to act responsibly to deal with its debt issues, saying uncertainty in the U.S. Treasuries market will undermine the global monetary system and hamper global growth.
Beijing has repeatedly urged Washington to protect its dollar investments, estimated by analysts to account for about two-thirds of its $3.2 trillion in foreign exchange reserves, the world`s largest.
Earlier this week, the United States narrowly avoided a default after lawmakers from across the political divide came together to hammer out a deal that would raise the country`s borrowing authority after weeks of rancorous partisan battles.
S&P`s downgrade may also push the United States to ease monetary policy further, causing even more uncertainty in global markets, said Ding Yifan, a deputy director at the Development Research Center, a think tank under the State Council.
“I think the chance of the United States launching another round of quantitative easing is rising, as outside investors may try to avoid dollar assets, leaving the Fed with no choice but to buy their own Treasuries,” Ding said.
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