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«——[·Preface·] ——»
The U.S. government's debt ceiling has been a major concern for global financial markets and economic growth.
However, when the US debt was on the road to 50 trillion yuan, the World Bank President came out and said
"China is responsible for the US debt!"
The tone of accusation, the firm conclusion, which makes China can't help but ask them, why?
First, the United States is too optimistic about its own debt
U.S. bonds are widely used as reserve currencies, safe-haven tools, benchmark interest rates, etc.
The issuance and management of U.S. bonds is the responsibility of the U.S. Treasury Department, while the buying, selling and auctioning of U.S. bonds is the responsibility of the U.S. Federal Reserve Bank.
Due to the coronavirus pandemic and the recession, the U.S. government has significantly increased fiscal spending and debt issuance, resulting in the current total debt well above the current debt ceiling.
Under normal circumstances, raising or suspending the debt ceiling is only a technical operation and does not imply that the government will add new spending or revenue plans.
It simply allows the government to continue to meet its existing legal obligations and repay bonds that have been issued before.
However, in practice, raising or suspending the debt ceiling often becomes a fierce political game due to the different fiscal concepts and interests between the two parties.
On the one hand, the ruling party usually wants to keep the government functioning and implement its fiscal plan by raising or suspending the debt ceiling.
On the other hand, opposition parties usually use this opportunity to pressure the ruling party and demand certain concessions or reforms.
If Congress is unable to pass a budget or temporary appropriations bill before the start of the budget year, the government will not be able to fund non-essential departments and agencies.
This can lead to the closure or cessation of the functioning of these departments and agencies.
If Congress is unable to raise or suspend the debt ceiling in time for the debt ceiling to reach it, the government will not be able to issue new bonds to raise funds and will not be able to repay bonds that have already matured.
This will lead to a technical default by the government, trigger shocks and uncertainty in global financial markets, and slow economic growth in the United States and the world.
Some kind of compromise to raise or suspend the debt ceiling, fiscal austerity measures, spending cuts or tax increases.
While these measures have helped reduce deficits and debt levels, inhibit economic growth and job creation, and exacerbate social inequality and discontent.
Second, what is the impact of the rise in the US debt ceiling on the economy?
The increase in the US government's debt ceiling has a significant impact not only on the US own fiscal position and economic outlook.
The U.S. debt problem has revolved the whole body, causing concern and uncertainty among global investors.
A higher ceiling means that the U.S. government can continue to issue more Treasuries to raise funds, which could lead to an increase in the supply of U.S. Treasuries, pushing up yields on U.S. Treasuries.
The yield on U.S. Treasury bonds is an important reference indicator of global interest rates and asset prices, and its rise will raise the cost of borrowing in other countries and regions around the world, affecting their economic activities and investment decisions.
A rise in U.S. Treasury yields would also increase the attractiveness of the dollar, leading to a stronger exchange rate. For those countries and regions that have large amounts of dollar debt or rely on dollar trade, it will increase their repayment pressure and foreign exchange risk.
A rise in U.S. Treasury yields would also trigger a correction in global asset allocation.
This has led to outflows from emerging markets and riskier assets to the United States and riskier assets, triggering volatility and instability in global financial markets.
The rise in the U.S. debt ceiling reflects the willingness and ability of the U.S. government to continue its proactive fiscal policy, which could spur U.S. economic growth and lead to a global economic recovery.
However, it could also exacerbate inflationary pressures in the United States and force the Fed to tighten monetary policy ahead of schedule, thereby curbing economic growth.
In addition, a higher U.S. debt ceiling could also exacerbate global trade imbalances and geopolitical tensions.
This increases economic stress and uncertainty for countries and regions that trade closely with the United States or are affected by U.S. sanctions.
Therefore, the impact of higher US debt ceiling on global economic growth is a double-edged sword, with both advantages and disadvantages.
China is the world's second-largest economy and largest holder of foreign exchange reserves, as well as one of the largest trading partners of the United States.
As the world's factory and consumer market, China has an important position in the global supply chain and can withstand and benefit from a certain degree of external shocks.
If the dollar strengthens, it may put pressure on the mainland's export competitiveness and foreign trade surplus, affecting China's economic growth and employment.
Is China obligated to take responsibility for U.S. debt?
China is not obligated to take responsibility for U.S. debt, and China's holding of U.S. debt does not mean that it is liable for U.S. debt.
Under international law and market practice, creditors are entitled to claim satisfaction or restructuring of debts only in the event of debtor default or insolvency.
Prior to this, creditors could only receive interest and principal as agreed in the contract, and could not interfere in the debtor's internal affairs or require any concessions or reforms.
China's holdings of U.S. bonds are based on its own interests and needs.
As an export-oriented economy, China needs to accumulate large foreign exchange reserves to stabilize exchange rates, prevent crises, and support development.
As a developing economy, China needs to invest in U.S. Treasury bonds to obtain stable income, learn advanced financial technology, and participate in global financial governance.
There are extensive common interests and cooperation space between China and the United States, as well as some differences and competitions.
China's holdings of U.S. debt reflect not only trust and respect for the U.S. economy and politics, but also concern and influence on U.S. policies and behavior.
epilogue
China's purchase of U.S. debt is based on economic decisions and has nothing to do with "obligations".
At the same time, the cooperation and competition between China and the United States in the economic, trade and financial fields are based on the principle of mutual benefit. Any attempt to shift the blame to the other side is unrealistic.
As the global economy becomes increasingly integrated, economic relations between countries become closer and closer.
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