Relief in the financial markets over an end to the financial gridlock in the US economy has been tinged with concern about the long-term risk that the deal will not be enough to avoid a possible damaging downgrade of the country’s top-notch debt rating.
As one US financial analyst put it: “We are sitting in the terminal waiting for the economy to take flight. Instead it is just being delayed, month after month after month.”
The United States’ biggest creditor is China. So far, Chinese officials have avoided publicly commenting on the debt showdown in Washington. Recent media criticism from Beijing was added to in the country’s main official newspaper on Tuesday.
The People’s Daily said the US debt problems have “merely been pushed off.“ Financial experts agree that any solution may only be temporary.
“Financially, America is in bad shape. They will probably introduce this emergency plan in which they will make more money available and so support the economy. But, in the end, that is not a solution. It makes it worse,” said Guang Jianzhong, president of the Chinese credit evaluator Dagong.
China’s concerns are backed up by the fact that it tops the league table as an investor in government bonds - outstripping Japan, the United Kingdom and Switzerland as the largest creditor to the tune of 1.160 million dollars.
One analyst said that the worry for Beijing is whether those assets will vaporise. Will America pay back or will everything simply disappear?
In the United States, the country’s central bank, the Federal Reserve, and the financial institutions hold 70 per cent of the country’s debt. Their eyes have been sharpened on the unfolding economic drama.
Will credit agencies downgrade America’s rating? That is one vital question for the future.
For the moment, from the country’s biggest creditor, there is backing for the latest move. The People’s Daily reported that Beijing is likely to view the plan as a positive step in restoring investor confidence in the dollar adding “the dollar remains a hard currency that all countries have no choice but to accept.”
Creditors react to Washington's debt deal