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China's Premier Warns Obama to Get America's Deficit to an "Appropriate Size"

Posted Nov 09, 2009 01:32pm EST by Heesun Wee in Investing, Newsmakers, Commodities, Recession, Banking

As President Barack Obama prepares to depart Thursday for his first Asia trip, Chinese premier Wen Jiabao is urging the U.S. to keep its deficit to an "appropriate size," a clear message to the leader of the world's largest debtor nation from its largest creditor.

China is the largest holder of U.S. government debt and has invested an estimated 70% of its more than $2 trillion stockpile of foreign-exchange reserves (the world's largest) in dollar assets, Reuters reports. Further dollar weakness, brought on by enormous U.S. deficit spending and near-zero interest rates, would erode the value of China's huge U.S. holdings, as Henry and Aaron discuss in the accompanying clip.

"Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate, and that is conducive to stability and the recovery of the global economy," Wen Jiabao said over the weekend at a news conference in Egypt.

In contrast, the best strategy for the U.S. may be an inflationary stance. We need stimulus spending to jump start our economy and reduce the real value of our record budget deficit of $1.42 trillion in the fiscal year that ended Sept. 30. An improved U.S. economy also would mean more Americans buying up Chinese-made goods.

Collision course with China? But as historian Niall Ferguson discussed in a recent sitdown with Aaron at Buttonwood, there's danger the U.S. may be on a collision course with the Asian giant. China, notably, is buying up hard assets with its cash including natural resources and oil from regions including Africa. As any history textbook will tell you, many political conflicts arise over disputes about natural resources.

Regardless of whether or not China chooses to unpeg its reminbi from the dollar, longer term the U.S. must come to terms with its deficit structure. Meanwhile, the dollar further weakened against the euro Monday as G-20 finance ministers offered no assurances they would take steps to strengthen the greenback.

386 Comments

- Monday November 09, 2009 01:43PM EST

This is the beginning of the dollars demise. Unfunded entitlements will push our debt over the edge and our dollar will die. JB

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 01:43PM EST

I guess this confirms what we've all known for a while. That America is now China's bitch. Thank you low, low price greedy people, short term thinking corporations and Wal-Mart shoppers.

- Monday November 09, 2009 01:46PM EST

I hate to say this, but the way things are going, China is going to be SCREWED big time by all their investments in us.

- Monday November 09, 2009 01:47PM EST

The Chinese invented paper money; a German invented the printing press; and an Italian invented the Ponzi scheme; and we are the Melting Pot.

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 01:47PM EST

China wants US dollar to be higher. Watch out. http://www.tradingstocks.net/html/death_of_the_us_dollar.html

- Monday November 09, 2009 01:48PM EST

Let's just keep spending (blowing) more and more. Hell, prosperity is just around the corner.

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 01:49PM EST

china! stop as from spending. please........

- Monday November 09, 2009 01:51PM EST

China is moving away from the US and the US has to pay down it's debt. This is something the US has to commit to not lip service but real results such as reducing the trade deficit.

- Monday November 09, 2009 01:52PM EST

I hope China doesn't foreclose on our loan!!

- Monday November 09, 2009 01:52PM EST

Have you bought your edition of Rosetta Stone "Learn to speak Chinese", yet? Our policies are laughed at by all the world over.

- Monday November 09, 2009 01:52PM EST

China threaten Obama. Apparently hasn't heard - can't do that.

- Monday November 09, 2009 01:53PM EST

Part of Obama's plan... destroy america.

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 01:56PM EST

I thought the dollar was already worthless, especially when the fed gives it to the banks for free, 0%. Hurry up everyone, sign up for those new credit cards at 28%

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 01:57PM EST

Yes china is building its military complex like gangbusters, 2 new aircraft carriers, frigates, etc and someone has been stealing all sorts of energy info and military data from the US in astounding amounts, gee do you think it might be some wayward geek kids or maybe chinese geeks with really short hair who look like GI Joes kids in uniform. I guess we will just sit on the sidelines until our MR. Dithers can get his health care thingy passed, then maybe he'll take some time from golfing to figure out what he shouldn't do.

- Monday November 09, 2009 02:01PM EST

Stop trying to predict the market and just follow the trend: www.originalturtletrader.com

- Monday November 09, 2009 02:05PM EST

We have over 300 billionaires and over 8 million millionaires. Why can't this peoples put the money together and let the Govt. borrow with low interest (one%). It could be over one trillion dolars. The Govt. has made Americans rich. Pay back.

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 02:05PM EST

No, you missed the big picture. As I have said over and over again, the entire trade should be nullified. People's Republic Of China has committed the most spectacular financial and commercial fraud in human history, Its loan loss is at least 2-3 trillion dollars. This would wipe out their entire US $ reserve and the subsequent assets. This would make their trashy RMB (Yuan) at 12-18 per dollar. This would cut its fraudulent GDP in half immediately. This whole free trade with China should have never happened in the 1st place. IT is assinine any way you look at, It has produced one of the most unstable and unsustainable relationship two countries can possibly have. A case in example. I recently have a brake pads installed on my Toyota car. The pads are made in China packed in a box that has no trade mark, no proper label, no brand, no maker info. It is a gray market product. What is shocking is that it is sold in Schuck's Auto Supply (parent company is O'Reilly Auto Parts and CSK Auto) , a chain store with nationwide outlets. Even the store clerk warns me that this product is not safe. He has seen about 20%of the customers return it. Ladies and Gentlemen, brake pads may affect lives. This is what our trade with China has led us to... I propose the US confiscate all China's assets in this country obtained via trade finance on trade that is in violation of WTO principles in the first place. It is time to act. Otherwise, the US is on the collision course with the fraudsters although when it happens, I will fight them for free.

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 02:07PM EST

concerned? why? barack hussein obama is potus.... why be concerned, he be the smartest marxist in the room mmm mmm mmm just print mo money eh barack?...mmm mmm mmm... barack will save the 'chi knee'... he'll raise massive taxes... a super high LUXURY tax on those 'evil' millionaires.. you know who they are, those who NEVER earned their money, just stole it off the backs of others.. cheated to get it... oops, but no jobs available... obama wins.. socializes america into a 3rd world as HE GOLFS GOLFS GOLFS.. mmm mmm mmm

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 02:10PM EST

No, you missed the big picture. As I have said over and over again, the entire trade should be nullified. People's Republic Of China has committed the most spectacular financial and commercial fraud in human history, Its loan loss is at least 2-3 trillion dollars. This would wipe out their entire US $ reserve and the subsequent assets. This would make their trashy RMB (Yuan) at 12-18 per dollar. This would cut its fraudulent GDP in half immediately. This whole free trade with China should have never happened in the 1st place. IT is assinine any way you look at, It has produced one of the most unstable and unsustainable relationship two countries can possibly have. A case in example. I recently have a brake pads installed on my Toyota car. The pads are made in China packed in a box that has no trade mark, no proper label, no brand, no maker info. It is a gray market product. What is shocking is that it is sold in Schuck's Auto Supply (parent company is O'Reilly Auto Parts and CSK Auto) , a chain store with nationwide outlets. Even the store clerk warns me that this product is not safe. He has seen about 20%of the customers return it. Ladies and Gentlemen, brake pads may affect lives. This is what our trade with China has led us to... ********************** The yellow box is marked as "standard brake pad" . Ask the store clerk for it. ************************ I propose the US confiscate all China's assets in this country obtained via trade finance on trade that is in violation of WTO principles in the first place. It is time to act. Otherwise, the US is on the collision course with the fraudsters although when it happens, I will fight them for free.

Yahoo! Finance User
Yahoo! Finance User - Monday November 09, 2009 02:11PM EST

This sort of reminds me of how every booze commercial has something phrase like "drink responsibly" on it.

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