China hopes the US can curb its Federal Deficit

I am glad to see that while I was gone, stupidity didn't go away. Amused readers want to take a look at this:

http://news.xinhuanet.com/english/2009-07/28/content_11786774.htm

China hopes U.S. will cut budget deficit

BEIJING, July 28 -- China expressed its hope that the U.S. government will be able to cut its budget deficit in order to prevent inflation that could jeopardize the value of China's dollar-denominated assets, as the two countries wrapped up the first of two days of high-level talks here. "We sincerely hope the U.S. fiscal deficit would be reduced, year after year," Zhu Guangyao, assistant minister of finance, told reporters after the conclusion of the first day of talks, which have been dubbed the U.S.-China Strategic and Economic Dialogue. "The Chinese government is responsible and first and foremost our responsibility is [for] the Chinese people, so of course we are concerned about the security of the Chinese [dollar] assets," Zhu said. China holds a total of more than 800 billion U.S. dollars in U.S. treasury debt, making it America's largest foreign creditor. As a result of recent American efforts to counter the financial crisis and stimulate the economy, U.S. government spending has soared, and is projected to reach 1.84 trillion U.S. dollars this year. That is more than four times the previous high. Many investors and economists fear this deficit spending will lead to inflation, as the increase in the supply of dollars drives down their value, thereby also reducing the value all dollar-denominated assets, including U.S. Treasury bonds. As a result, some investors have started to buy shorter-term bonds, which they hope will not be impacted by any longer-term inflation driven by increased government spending. U.S. Secretary of Treasury Timothy Geithner assured the Chinese delegation in his opening remark on Monday that U.S. has taken steps to overhaul its financial system, enhance regulation, and control the deficit. "We are committed to taking measures to maintain greater savings and to reducing the federal deficit to a sustainable level by 2013," he said. However, Geithner did not reveal how, specifically, the United States planned to achieve its deficit-cutting goals during the dialogue. Both American and Chinese officials, however, agreed that the economy has begun to slowly stabilize. "We have agreed that green shoots have emerged in the international economy and financial markets," said Zhu. However, the economic foundation is far from being sound, and the current situation remains severe, Zhu warned.

Of course Geither didn't reveal how the US plans to cut its deficit. He can't. Because it can't be done. Why? Because the US has strategic goals that are diametrically opposed to each other. For example, Obama wants to reform Health care by insuring everyone ,but he wants to balance the budget. Obama wants to pay for it by streamlining paperwork. No mention of rationing. No mention of the fact that you always have unlimited demand for free services. As long as the US lives the fantasy that you can get something for nothing, then we will all be treated to lie after lie from administration and administration. I suspect that behind the scenes, Geithner promised the Chinese that the US will not pursue the IP legal issues that the Chinese piracy scene nurtures. Giethner probably promised that the US will do everything in its power to get the US consumer back to consuming Chinese goods. Remember that although China calls the shots now (as evidenced from the above statement that China is the largest holder of US debt), China is still a very fragile country internally. 2012 is the 100 year anniversary of the collapse of the Chinese empire. The old hundred names in China normally suffer in silence. But occasionally that silence gets broken with revolutionary cries. Those cries will get louder and louder as unemployment goes higher and higher. So although China is in a good long term position relative to the US in regards to spending, they by no means are a lock in assuming the mantle of reserve currency. China still has problems that have to be resolved.