Sunday, August 07, 2011

Them's Fighting Words

As the war of public words between the US and China escalates, the old adage- When you owe the bank $1Mil, you owe the bank.  When you owe the bank $10Bil, they owe you - springs to mind, with a nasty twist. Chillingly, both parties are nuclear armed with significant standing armies.

Following S&P's downgrade of US debt China's Xinhua news offers the following wise economic advice:

China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets.

To cure its addiction to debts, the United States has to reestablish the common sense principle that one should live within its means.

S&P has already indicated that more credit downgrades may still follow. Thus, if no substantial cuts were made to the U.S. gigantic military expenditure and bloated social welfare costs, the downgrade would prove to be only a prelude to more devastating credit rating cuts, which will further roil the global financial markets all along the way.

Alas, sometimes economic wisdom clashes with political reality.  Chinese calls for US military expenditure cuts will prick US hawks' ears the wrong way.  I can hear them now- this has been China's goal all along.

I fear the world just took a step closer to the abyss of war.