The Farce Continues
The United States Congress ended its impasse yesterday and as predicted came to a last minute deal to raise the debt ceiling. This was characterized by the media as averting default.There never really was a threat of default as there was enough money to pay the interest on the U.S. debt, but all sides (the President, the Democrats and Republicans) acted as if that was what was at stake. The real issue was about how much discretionary spending the government wants and can afford. Yesterday Congress voted for all of it.
The real issue was about how much discretionary spending the government wants and can afford. Yesterday Congress voted for all of it.
A Continuation of Dysfunctional Monetary and Fiscal Policies
The Dollar, Gold and Silver
China Calls for a De-Americanized World
Foreign creditors could care less about the politics between the President, Republicans and Democrats. What they heard during the debt ceiling debate was that the United States can only pay its creditors if it borrows more.
China, the United States’ largest creditor, wrote in its state run news agency on October 13, 2013 about the United States “such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated“. China has been diversifying its reserve assets out of U.S. Treasuries for the past few years. For more on the United States Dollar and its status as the world’s reserve currency and challenges to its hegemony click here.
Last week China entered into a $60 billion swap agreement with the European Central Bank with the intent of internationalizing THEIR currency.
Today, one of Asia’s largest credit rating agencies, China’s Dagong, down graded the US from A to A- noting that the U.S. is “still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future.”
Japan, the United States’ second largest creditor and with a debt to GDP ratio of 250%, added to the chorus of concern regarding the United States fiscal position saying the “United States must avoid a situation where it can not pay and its triple AAA rating plunges all of a sudden.”
We predicted a budget deal that raised the debt ceiling would cause people to buy gold and silver. The day after the deal was announced gold and silver rose 2.5% each, while the U.S. dollar index dropped 1%.