US Debt Ceiling with China

All around America the subject of the national debt is being discussed. Everyone is, or at least should be, discussing the ramifications of it. It affects everyone, from the richest of the elite to the poorest of the poor. Its a very important matter that affects almost every part of American life. It affects building of infrastructure, health care and even the payment of the debt itself. This is a very confusing and potentially dangerous time in America.

People from all ends of the political and economic spectrum are throwing in their opinion of the mess the country is in. There is raging debate going on in congress and in the media. Everyone is throwing their opinion into the discussion arena regardless of ideology. However there is one person’s opinion that is not being discussed. The most important opinion of all, China’s.

After all, the money is owed to China. You can bet sooner or later the Chinese will come looking for their money. That day may be approaching very soon with the debt ceiling coming up on August 2nd. The Chinese have already expressed their concerns over America’s ability to pay it’s debt.

“We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors.”
– Hong Lei, Chinese foreign ministry spokesman

“Responsible policies and measures” is a code phrase, its code for massive cuts to social spending and draconian austerity measures. This will be no different than what happens to the Third World when they borrow money from the World Bank or the International Monetary Fund. That’s right, what happens to the Third World will be happening to America. This debt is planning to be paid by destroying the living conditions of the working class in America.

Beijing has expressed worry about this situation in the recent past as well. In 2009 after the global economic collapse the Chinese grew nervous about the value of its US debt. If America goes bankrupt, that debt will not be paid and is a devastating loss for China. The same thing happened last year when the Federal Reserve did its quantitative easing, it undermined the value of the debt to China, instigating the Chinese further.

Both the US and China are now both buried deep to the neck in this situation. The United States cannot default on its debt or it will alienate China, which purchases Treasury bonds. Beijing can’t just forget about the debt, or not be paid, because they have far too much money invested in the US. China pretty much just has to sit there and take it.

Really what is happening here is the development and likely the apex of a “too big to fail” scenario. If China decided to sell its American debt, other countries would sell their dollar assets. This could devastate the value of the debt held by China. US debt isn’t worth much if everyone is trying to get rid of it. If countries think the US will pay its debt, others will buy it. But in this case, countries will know the debt is worthless if China tries to sell it. Trying to sell the US debt would be suicide for the Chinese economy.

Many believe that this situation is what caused global financial crisis to happen. Artificially low interest rates is what fuelled the housing bubble that eventually burst in 2008. It was, like all moves in capitalism, a gamble. All investments schemes eventually go bankrupt. You can’t keep investing in something forever.

It is in this current situation that capitalism begins to more openly show its contradictions. In the economic relationship between the US and China both sides are taking opposite measures to ensure their interests. The American policy is more saving, less spending. This is good for the US economy and bad for the Chinese. China is doing the opposite, encouraging more consumption and less saving. This hurts the US economy and helps the Chinese.

The stability and production of living stands for two different groups of working classes are being played against each other. This is the result of capitalist competition. The working classes don’t need to fight with each other to protect their living standards. Working classes can share resources according to who has need. It is the capitalists who have to fight because they seek profit, more than what they need to the exclusion of others.