The event under discussion did not merely concern money and global finances. It had something to do with the world order's "load-bearing" structures. Although this turns out to be a mistake, it has scared many people.
On February 16, the U.S. administration confirmed the assessment figures received by the media from private research agencies on February 12. According to the analysis, China, which owned the majority of U.S. Department of the Treasury securities in 2009, has ceded first place to Japan. In December 2009, the U.S. government owed $755.4 billion to China and another $768 billion to Japan.
In effect, two events have taken place. The second implies that the United States now considers Japan more important, if only symbolically. However, the first event cannot be called a mere trifle. According to various reports, the changes were caused by Chinese sales of U.S. securities worth $34.2 billion starting in November 2009. At the same time, Japan bought $11.5 billion in such securities. This is the most serious aspect. Does this mean that U.S. securities worth such tremendous amounts are being dumped? Does this mean that the world no longer wants to finance the United States in exchange for its debentures?
The total U.S. debt now exceeds $12 trillion and accounts for about 90% of the country's annual GDP. The United States has noticed the following principles of the current world order: Washington borrows money from everyone but will probably never repay its creditors. In exchange, it promises to strengthen the security of all nations, to replace dictatorships with democratic regimes and to ma ke the world better in every respect.
And now it turns out that China is selling off U.S. securities. What is happening? Has the second global power decided to push the first power from its shaky pedestal? And what about Japan whose economy is larger than China's, but who plays a miniscule political role in the world? Does this mean that both countries will now become America's main creditors? How can they be dealt with? And what issues can be discussed with them?
This sensation lost momentum in early March after it turned out that statistical records did not take into account Chinese financial operations in London. Everything happened the other way round. Beijing sold $34 billion in U.S. securities but bought almost four times as much. Consequently, America's debt to China increased by $139.4 billion. So, China is still the Number One with $894.8 billion, followed by Japan with $768.8 billion.
The United States has calmed down because it is used to owing a lot of money to China.
Except for some funny "ancillary circumstances," this incident could have been forgotten. Numerous Chinese officials and analysts were unaware that other branches of the national government still had not written off the United States. The Chinese Foreign Ministry's spokesman Qin Gang said the country was managing its currency reserves as it saw fit, so that such reserves did not become depreciated. Second, the United States should take action in order to boost investors' confidence in the dollar.
What does the dollar have to do with this? Analysts of Renmin Ribao (People's Daily), the mouthpiece of the Central Committee of the Communist Party of China, have voiced some curious and interesting opinions. They say the permanent issue of "empty" dollars is the only way to cope with the constantly expanding U.S. debt and budget deficit. This serves to devalue U.S. foreign debt which is denominated in dollars. Consequently, the Chinese government has worked out a policy for slowly reducing or expanding the volume of U.S. securities it owns.
In effect, Beijing is teaching America how to manage its economy and is also issuing a warning. It should also be recalled that the key Chinese-U.S. dispute revolves around the yuan's exchange rate which Washington believes is artificially understated. This makes American goods uncompetitive on all markets, including the U.S. market.
Beijing responds that the dollar has become depreciated to such an extent under President Barack Obama that this is tantamount to raising the yuan's exchange rate by almost 20%. Add to this dollar issuance to cover debt and the budget deficit.
Still, Beijing is not omnipotent. It is true that China first began to dump U.S. debentures and then turned around and bought them when the rate began to plunge. Please note the word "slowly" mentioned above. Beijing would lose in any respect because all-out debenture sales would only depreciate the dollar further.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
MOSCOW. (RIA Novosti political commentator Dmitry Kosyrev)
