The recent government shutdown and debt crisis in the United States was not only frustrating for Americans, but for the rest of the world as well. According to the Washington Post, China went so far as to issue a statement through its government-controlled news outlet, the Xinhua News Agency, asking the rest of the world to “de-Americanize.”
The statement claims, “The world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites. Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated.”
Mei Xinyu and Zhao Xijun, two of China’s Economic and Financial experts, also expressed their extreme displeasure with American politics.
Mei Xinyu, an advisor with China’s Commerce Ministry, said, “The congressmen are behaving irresponsibly not only for other countries but also for [the United States’] own creditors. They are gambling the U.S. future on their political-struggle interests.”
Zhao Xijun, deputy dean at Beijing’s Renmin University School of Finance, believes that “The two political parties in the U.S. have disregarded the interest of the rest of their counry and the world.” Xijun also went so far as to liken American political leaders to kidnappers, holding global investment for ransom.
As the United States’ biggest creditor, with about $1.28 trillion in U.S. Treasury bonds, China has a keen interest in the status of America’s credit rating. Mei Xinyu believes that a U.S. default would have a negative effect on China’s assets, currency-issuing, and exchange-rate fluctuations.
The second-largest holder of U.S debt is Japan. Not surprisingly, they also issued a statement of displeasure with recent events. According to Japan’s finance minister, Taro Aso, “The U.S. must avoid a situation where it cannot pay and its triple-A ranking plunges all of a sudden.”
According to Yahoo! News, no two economies outside the United States have more at stake in Washington’s recurring drama than Japan and China. The revitalization of both of their economies is dependent upon an improving U.S. economy.
Despite all that, it is a poorly kept secret that China is pushing for the Yuan (China’s currency) to surpass the dollar as the world’s reserve currency. Prior to this recent governmental debacle in Washington, there were many experts claiming that the Yuan would take over sooner rather than later. So even though the debt crisis was averted, more events like this could speed up this process, potentially leading to the fall of the dollar.
In fact, the Xinhua News Agency statement addressed this issue by calling for the establishment of a new international reserve currency to replace the U.S. dollar “so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.” While not mentioning the Yuan as a potential replacement, the message is clear: the U.S. dollar is losing a grip on its once dominant global position.
In a statement to Yahoo! News, an anonymous Japanese policymaker said, “We’re glad a deal has been struck. But the uncertainty will remain and it will be the same thing all over again early next year.” The shutdown has ended and the debt ceiling has been raised, but America’s debt crisis is far from over.
With China, Japan and other countries (Russia) pushing for reserve currency reform, the debt ceiling debate far from resolved, continued warnings of another market crisis and central banks buying gold in record numbers, makes all the more reasons for investors to really question the stability of this U.S. market. Ron Paul is convinced “…the dollar is going to go down and gold will go up.” but the question is…can your portfolio handle a market meltdown?
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