Global Economic Crisis

In an earlier post, I reported on the statement Chinese premier Wen Jiabao made at a press conference regarding his anxiety over the security of his nation’s vast investments in U.S. securities due to Washington’s wild and crazy fiscal policies. Well, it appears that his nervousness regarding the United States economy is growing rather than receding.

Premier Wen is touring Africa, where China in investing sizeable amounts of cash in strategic acquisitions. While in Egypt, and again at a news conference, Wen made the following statement to the international press:

“I hope that as the largest economy in the world and an issuing country of a major reserve currency, the United States will effectively discharge its responsibilities. Most importantly, we hope the U.S. will keep its deficit at an appropriate size so that there will be basic stability in the exchange rate that is conducive to the stability and recovery of the world economy.”

With the value of the U.S. dollar continuing to plummet as gold prices rise, and America’s massive deficit spending continuing unabated, I wonder how China will react when the Obama administration decides on a new stimulus spending package, as will almost certainly be the case in early 2010. Perhaps Beijing may be reluctant to continue acting as Washington’s revolving credit card. But without China’s largesse, who then buys U.S. Treasuries, and most importantly, at what bond yield?  I believe that the days when Washington could fund its deficits at absurdly low interest rates may be about  to leave us for good.