President Barack Obama publicly addressed China’s deep concerns to America’s ability to pay its debt. American debt has become scary to everyone.
Chinese Prime Minister Wen Jiabao publicly asked if America could pay back its debt. China is biggest holder of US treasuries, and its hundreds of billion of dollars. With the growing debt, and the new stimulus package, China became concerned that it put its money in worthless paper.
So, the Prime Minister expressed his concern, and he was quickly answered by the highest ranking American: President Obama found this alarming enough to address it with his voice. He sent a message that “everything is ok”:
“Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the United States,” Obama said after meeting Brazilian President Luiz Inacio Lula da Silva at the White House.
“There is a reason why even in the midst of this economic crisis you have seen actual increases in investment flows here in the US.”
But not everything is ok. A public statement, at the highest rank, shows that the US is also scared that China will move away from American bonds, move away from the US dollar.
Many economists and analysts were aware of the growing debt of the US to China. They were wondering if the US could “borrow its way out of the crisis”. Wen Jiabao expressed the concern that many high ranking official were afraid to express. Not only Third World countries can default on their debt. Also the US, the strongest country in the world, with the biggest economy, can go bankrupt.
America going bankrupt? Still sounds crazy, but after these two statements, this wild possibility cannot be ruled out.
Effect on Forex: These statements are scary for the US dollar. Since the forex market doesn’ always wait for things to happen, these statements could cause moves at the beginning of the forex trading week.
Traders might either follow the fear for the dollar, which I expressed here, or trust Obama’s confidence in the American economy and continue to treat the US dollar as a safe haven currency, a currency that won’t default.
We’ll know in a few hours…
Share
