Thursday, December 17, 2009

The Debts of the Lenders: China Bears on the Dollar

No surprises here. It used to be that central bankers would never discuss the value of currencies, particularly the dollar. But nowadays, everyone from the Japanese, Americans, Russians, Europeans, and Chinese are making currency notations part of public discussion. The latest salvo fired from the Chinese concerns their long term, fundamental views of the US dollar. The statement was issued in response to the House of Representatives approval of the latest increase in the debt ceiling.

“When the U.S. has to fund its deficit through the combination of issuing more Treasuries and printing more dollars, it is inevitable that the dollar will continue to weaken,” Deputy Governor Zhu said at a forum in Beijing today.

Even disgraced former central banker, Alan Greenspan, had this to say about the dollar:

WASHINGTON (Dow Jones)--Former Federal Reserve Chairman Alan Greenspan said in prepared testimony the threat to U.S. fiscal stability is larger than ever, mostly because of rising medical costs.

Averting a situation where the U.S. struggles to finance unprecedented budget deficits "is more urgent than at any time in our history," he said in testimony Thursday before the U.S. Senate Committee on Homeland Security and Governmental Affairs.

Greenspan argued that the problem of large projected shortfalls in Medicare and Medicaid can't be wiped away with more appropriations from Congress. "It is a physical resource crisis," he argued, which will suck more of the U.S. labor force and capital investment into the medical sector.
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