A day after the world’s biggest economy suffered a shocking downgrade, biggest creditor China censured the US saying it could no longer afford to borrow its way out of financial messes created by its own mistakes.
“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,” official Xinhua news agency commented and called for a new global reserve currency.
After a week of severe volatility in the global markets which saw $2.5 trillion of investors’ money getting wiped-off, a double dip US recession and a looming Eurozone crisis is weighing heavily on every investor’s mind.
China criticised the US’s protracted political deadlock that had pushed the country to the brink of default, terming it ‘short-sighted’ and flayed the country for its ‘debt addiction.”
“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.
The US must stick to its budget deficit reduction plan, and cut social welfare and military spending, it said. “International supervision over the issue of U.S. 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,” it observed.
The downgrade has triggered intense backroom negotiations necessitating a coordinated international response. “The G7 will confer by telephone. It’s not yet confirmed whether it will be in one stage or in two stages, tonight and tomorrow,” said a senior European diplomatic source about the telephonic consultation due to be held on Saturday or Sunday by the G7 finance ministers and central bankers to prevent another economic slowdown.
French Finance Minister Francois Baroin came out in support of the US, saying France has faith in the strong fundamentals of the US economy and believed the economy will soon bounce back, citing stronger than job growth data.
“Therefore, one should not dramatise, one needs to remain cool-headed, one should look at the fundamentals,” Baroin said iTele.