China'S Trillion Dollar Debt Is Shrinking

On a building at the junction of Sixth Avenue and 42 street in New York, there is a 26 foot long screen. This is the famous " National debt clock " In 1989, when old Bush came to power, he set up this "national debt clock", hoping to remind Americans to think more about their future generations and not to do so on economic issues. Eat next year's food "

In August 2nd, less than 10 hours after the default date, President Obama formally signed the bill to raise the debt ceiling by the two chambers. Today, the number of national debt clock has exceeded the US $14 trillion and 290 billion statutory limit, and is continuing to increase.

Although the US avoided technical default at the last moment, the fundamentals of the US economy and the intensification of the global economic conflict did not improve. In August 3rd, Dagong, China's rating agency, took the lead in reducing the US credit rating. In August 5th, S & P, one of the top three international rating agencies, lowered the US long-term sovereign credit rating from "AAA" to "AA+". The rating outlook was negative. This is the first time in the history of the United States that it has lost the AAA credit rating.

In August 4th, because of fears that the US economy might fall into the second round of recession and the European debt crisis has not yet been resolved, the three major U.S. stock indexes dropped by more than 4%, and the world stock market ushered in the darkest day since the 2008 financial crisis.

　　 US debt or short-term reduction

For China's $1 trillion and 160 billion Treasuries, China's holdings of Treasuries are facing losses due to the fall in prices of bonds facing selling pressure.

Because the US dollar is the global reserve currency, the US financial market is the most developed financial market in the world, which leads to the highest sovereign credit rating of US Treasuries. On the one hand, the US government can get the advantage of this rating at a lower cost. financing On the other hand, US Treasury bonds have become the most liquid and safest financial assets in the world.

But this advantage and trust are changing. In August 5th, S & P lowered the long-term sovereign credit rating of the United States to AA+, the first time in the history of the United States that it has lost its AAA rating. At present, the 10 year treasury bond interest rate in the United States has been kept at a low level of 3%. After losing the 3A rating, investors are in danger of avoiding demand and may reduce treasury bonds in the short term. Lower prices will drive their yields higher and the cost of new treasury bonds will also rise.

Morgan, head of global strategy at the fixed income division of JP P. P. Terry Belden, pointed out that the credit rating dropped to "AA" level. The interest rate of us long-term treasury bonds could rise by 60 to 70 basis points, which means that the issuance of treasury bonds by the government needs to pay higher interest rates, which may result in an annual payment of more than 100 billion yuan interest.

According to media reports, Paul Krugman, the Nobel Laureate in economics, has publicly warned many times that China, as the largest creditor country in the United States, is at risk. Whether it is a depreciation of the US dollar or a decline in the US debt rating, it may lead to a 20% to 30% impairment of China's investment in US Treasury bonds.

　　 Once sold, it will trigger. depreciation

As of May this year, the public debt of the United States was US $14 trillion and 300 billion, which accounted for 31% of all central banks and investors including China. This means that central banks and investors are all tied up in the US chariot chariots.

"The United States raised the debt ceiling to postpone bond defaults, but this way to solve the crisis will continue to exacerbate global liquidity and leverage by constantly printing banknotes, which will undoubtedly further expand the crisis." Xie Guozhong, an independent economist, said.

US Treasury Department data show that since 1960, the US Congress has raised its debt ceiling 78 times, averaging eight times a month. Since Obama took office in January 20, 2009, Congress has raised the debt ceiling for the three time, raising the total amount of $2 trillion and 979 billion.

A private institution in the United States has also set up the "American debt clock" website. The most prominent position on the front page of this website lists the total debt of American Society: about 55 trillion dollars. In 2010, the total GDP in the US was 14 trillion and 500 billion US dollars, which is nearly 4 times that of GDP in the United States. On average, each American citizen has a debt of $176 thousand, and each American family has a liability of $660 thousand.

Zhao Xijun, vice president of the school of Finance and finance of Renmin University of China, believes that a radical cure for the US debt crisis depends on the improvement of the US government's debt management capability. There is no fundamental change in the mode of debt supplement in the United States, which is determined by its economic development pattern.

A large portion of US Treasury bonds is paid by the global economy. As of May this year, the total public debt of the United States amounted to US $14 trillion and 300 billion, and central banks and investors, including China, held us $4 trillion and 450 billion. Andy Rothman, a Chinese strategist at CLSA, said that even if China could sell some of its US bonds, it would also cause other countries to sell their holdings of US bonds, leading to the depreciation of China's bonds. "For China, this will be financial suicide." Rosman said.

　　 foreign exchange reserve Decline in purchasing power

In fact, the risk of holding US debt does not come from the risk of repayment. So far, the US debt has not yet been solvency. But the US debt may cause passive losses of US debt holders as the dollar weakens.

China's foreign exchange reserves exceed US $3 trillion. As of the end of May, China held 1 trillion and 160 billion US dollars in US Treasury bonds. It was the first holder of US Treasury bonds, accounting for 12% of the total, and 2 percentage points higher than the US Federal Reserve. Of China's external financial assets, 71% is US dollar assets. In other words, the relationship between China and the United States on the US debt issue is "lips and teeth".

Swank, chief economist of Mesirow Financial HoldingsInc., a Financial Services Company based in Chicago, said: "the United States is addicted to consumption, and China is the only country that can satisfy our desire. It's not easy to quit this addiction. "

China's foreign exchange reserves are denominated in US dollars, and the purchasing power of the US dollar is the purchasing power of our foreign exchange reserves. As China's foreign exchange reserves are foreign investment, the US dollar's trend towards other non RMB currencies, such as the euro, pound sterling and Japanese yen, will directly determine the purchasing power of China's foreign exchange reserves. However, the US dollar index, reflecting the degree of exchange rate changes in the US dollar against a basket of currencies, dropped from 93.34 in 2005 to near 74.6 now, down more than 20%. In addition, international commodities are all denominated in US dollars. If the US dollar depreciated, the prices of these commodities will rise, resulting in a decline in the actual purchasing power of China's foreign exchange reserves.

The US dollar time website calculates the purchasing power of the US dollar from 1914 to 2010 based on the consumer price index. In 1990, the purchasing power of US $1 was equivalent to US $1.71 in 2010. That is to say, in 1990, we need to spend $1 to buy things in 2010, which will cost US $1.71.

　 China's exports face pressure

As the engine of the global economy, the recession of the debt problem and the weakening of the US dollar will affect the global trade. The largest exporter is China.

The cost of raising the debt ceiling by the US government is the deficit reduction of US $2 trillion over the next ten years, which is not easy for the us with high welfare.

Liu Yuhui, director of the economic evaluation center of the Chinese Academy of Social Sciences, pointed out that in the current US government expenditure, the welfare expenditure accounts for up to 58%. This voluntary expenditure (including social security, health care and pension) is accumulated by the successive campaigns of the US government, so it is hard to compress each other. Some scholars worry that reducing the deficit will suppress the unstable American economy, which is inevitable or inevitable.

From the perspective of external demand, Sino US bilateral trade totaled 385 billion 340 million US dollars in 2010, accounting for 12.9% of China's total trade volume. China's largest export destination is the European Union, followed by the US, and Europe is also at risk of slowing economic growth.

Zhang Ming, deputy director of the International Financial Research Institute of the Institute of world economics and politics of the Academy of Social Sciences, believes that under the influence of the US debt crisis, China's import and export enterprises may face the unfavorable external demand, the continued appreciation of RMB and the increasing international trade frictions in the coming years. In addition to enhancing core competitiveness through various means, there are not many ways to deal with it.

Another way to ignore this is that after the US debt default problem, the weakening of the US dollar led to a passive appreciation of other currencies. Japan and Switzerland both had to intervene in their foreign exchange markets last week. The appreciation of the renminbi caused by the weakening of the US dollar will also inhibit the growth of China's exports.