China Has a Plan, America Doesn't

China Has a Plan, America Doesn't

from "the spiegel" 

America has been squandering money it borrowed from the Chinese. Instead of criticizing China's monetary policy, US President Barack Obama should acknowledge the financial skill being displayed by the new world power and teach his own nation how to save money.Everyone knows that it is important to have friends. But in politics it is just as important to have enemies. Because being united against a common foe can be helpful.So it may come as no surprise that the embattled US president, Barack Obama, is continuing where his predecessor George W. Bush left off: complaining about the Chinese. Obama recently said China's monetary policy was hurting the US job market. That strikes a chord with Americans. It's even true. But it doesn't make any difference.The US is the world's biggest debtor and therefore not in the best position to get its way with the People's Republic of China. Of each dollar that Obama wants to spend in 2010, around 30 cents are borrowed. And a large part of the loan comes from China.It might be smarter for the US to stop with the reproaches and to learn from the Chinese instead. When compared to the Americans, their financial situation is more than rosy. And their monetary policy is highly sophisticated.

The Days of Cheap Money are Over

The Chinese don't borrow, they save. And they do this with the kind of dedication with which the Americans spend. The People's Bank of China has hoarded over $2 trillion in currency reserves. America meanwhile has a small dollar reserve and an XXL-sized budget deficit which currently stands at just under $14 trillion.China is gently putting a stop to the expansionary monetary policy that helped to stabilize the fragile monetary system during the financial crisis. The government has increased interest rates and forced private commercial banks to hold larger reserves. It is withdrawing the liquidity it pumped into the market. The days of cheap money are ending.
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Alarm bells ring as demands for US Treasuries nosedive

Wed, 17 Feb 2010 08:05:49 GMT

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Alarm bells ring in the US over the reluctance of foreigners in buying Treasury securities after a report showed a declining demand for long-term assets in December. The Treasury Department says China and Japan have decreased their holdings in the treasury fund. Beijing reduced its holdings by $34.2 billion to $755 billion entitling it to the second-largest foreign holder of US Treasuries behind Japan. The big drop in China's holdings in December is the largest monthly drop since the year 2000, it said. Japan also reduced its holdings to $768.8 billion by trimming $11.5 billion of it in December, but it still remains the largest holder of US Treasury securities. 

"Foreign holdings of US Treasury securities fell by 53 billion dollars in December, surpassing the previous record drop of 44.5 billion dollars in April 2009," the report said. The US budget deficit is projected to hit a record high of $1.56 trillion in 2010, surpassing last year's record $1.4 trillion deficit. Critics say the gigantic gap will not be sustainable and will eventually damage the economy. They also warned that the decline in holdings of Treasury securities may force the US government to make higher interest payments in the future