Author Topic: As U.S. averts default, Japan and China brace for next dollar drama  (Read 336 times)

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Offline Cincinnatus

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Deal or no deal, the U.S. Congress' dance with default impressed policymakers and investors in China and Japan with just how vulnerable their own economic revival plans are to the next political tantrum on Capitol Hill.

The 11th-hour agreement on Wednesday between Congressional Republicans and Democrats to raise the limit on U.S. government borrowing and end a 16-day government shutdown also averted a default on U.S. Treasury bonds that had threatened the global economy and financial system.

But Congress gets another chance to hold U.S. creditworthiness hostage early next year ahead of a new February 7 deadline to approve a debt ceiling increase.

"We're glad a deal has been struck," said a Japanese policymaker, who spoke on condition of anonymity. "But the uncertainty will remain and it will be the same thing all over again early next year."

He and other Japanese officials say they have already developed contingency plans that include flooding Japan's banking system with cash to keep markets functioning however panicked investors become. And analysts say China, whose Communist leaders are due to hold a key policy meeting next month, may step up a push for global acceptance of its currency, the yuan or renminbi, as an alternative to the U.S. dollar in international trade.

So Reuters would have it that international markets are reacting negatively to the gridlock in Congress. That may be a factor but the greater truth can be found in another story:

Dollar Slips as Fed Worries Continue

Expectations that the Federal Reserve will have to keep its easy-money policies in place for longer following the partial U.S. government shutdown pushed the dollar close to its lowest point of the year against the euro and U.S. Treasury debt prices to their highest point since July.

Our out of control spending is debasing the already anemic value of the dollar. If I were a foreign investor I, too, would seek to protect my assets by moving away from dollar denominated investments, and seek a sounder and safer currency, perhaps the yuan, while Americans move into precious metals. Either way spending and federal debt are destroying the very thing that is the lifeblood of our economy, the dollar.
We shall never be abandoned by Heaven while we act worthy of its aid ~~ Samuel Adams

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