Debt crisis engulfing Chinese real estate giant is distracting market attention from the bigger financial threat emanating from the US


Brinksmanship over the US debt ceiling is bringing back traumatic memories Beijing would prefer to keep buried. An earlier debt-limit skirmish in August 2011 cost America its AAA rating from Standard & Poor’s. That came as Republican lawmakers pushed the world’s biggest economy to the brink of default.

The fiasco left China, then the biggest holder of US Treasury debt, cold. At the time, the Chinese government condemned the “short-sighted” wrangling in Washington and urged lawmakers to act more responsibly.

A 2011 editorial by the official Xinhua news agency said Beijing had “every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets. International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”

That plea made then-premier Wen Jiabao seem borderline clairvoyant. Back in 2009, Wen issued a remarkably rare public plea to US officials to be more reliable stewards of Beijing’s vast dollar holdings – and to protect the value of the more than $1 trillion of Chinese state wealth sitting in Treasuries at the time.

As Wen said back then: “We have made a huge amount of loans to the United States. Of course, we are concerned about the safety of our assets. To be honest, I am a little bit worried.” He urged Washington “to honor its words, stay a credible nation and ensure the safety of Chinese assets.”



Two years later, S&P rendered a dire judgment on that credibility, yanking away Washington’s AAA status. Now, a decade later, it’s time for Wen’s successor, Li Keqiang, to worry about Beijing’s $1 trillion-plus exposure, as Donald Trump’s party again holds America’s credit ratings hostage.


America’s debt Armageddon

Trump wasn’t in the political picture back in 2011. His 2017 to 2021 presidency, though, gave Xi and Li exponentially more reasons to worry about the safety of Chinese savings. Trump’s trade war came on top of his frequent tirades about China “killing” American workers with an undervalued exchange rate.

By the time he turned the keys over to Joe Biden in January, the US government was on course to a $30 trillion debt burden. That’s twice the size of China’s annual gross domestic product (GDP).

During his time in office, Trump’s inner circle mulled canceling portions of the debt the US owed Beijing. Trump also considered a dollar-to-yuan devaluation of the kind Vietnam or Argentina might suddenly announce.

Such considerations were hardly out of the blue. In May 2016, six months before he was elected, Trump, a serial bankruptcy offender as a businessman, floated the idea of reneging on US debt in a CNBC interview.

“I would borrow, knowing that if the economy crashed, you could make a deal,” Trump said. “And if the economy was good, it was good. So, therefore, you can’t lose.”

Yet China could indeed lose if the Republican Party over which Trump still holds great sway imperils America’s credit rating anew. Ditto for Japan, which has since topped China as the top holder of US government debt –$1.3 trillion to Beijing’s $1.1 trillion.

Moody’s Analytics economist Mark Zandi speaks for many when he says, “It’s complete craziness to even contemplate the idea of not paying our debt on time. It would be financial Armageddon.”

US default a greater risk than Evergrande meltdown - Asia Times



With trumptard republicans on the other side, how looneytoons might this get?
And why is this farce repeated so often? '11th hour deals'- so far. Ridiculous.