NEW YORK (CNNMoney) -- The Chinese government, the top international investor in U.S. Treasuries, urged the U.S. government to get its debt under control or its credibility will suffer.
"We hope the U.S. government will take responsible policies and measures to boost global financial market confidence and respect and protect the interests and investors," said the Chinese government's State Administration of Foreign Exchange in a statement on its website.
The Chinese statement referred to U.S. debt as "the reflection of the credibility of the U.S. government" and an important investment tool.
The Chinese government also said it "noticed the opinion expressed by S&P and other rating companies regarding the credibility rating of the U.S. sovereign debt," offering an unpleasant reminder of a recent credit rating action.
In April, Standard & Poor's said the United States was at risk of having the triple-A rating on its debt lowered within two years if Washington can't agree on bringing down the national deficit. The agency lowered the outlook on America's long-term credit rating to "negative" from "stable."
In Washington on Tuesday, a bipartisan group of Senators called the Gang of Six put forward a plan to slash the nation's deficit by about $3.7 trillion over ten years. The plan has received praise from other senators and President Obama.
Debt ceiling delay would be 'chaotic'
Meanwhile, U.S. lawmakers are locking horns over whether they should increase the debt ceiling by Aug. 2. Failure to raise the debt ceiling could result in a default.
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Synopsis:
When the Chinese start telling you how to start managing your debts, you've come to the point where you're no longer the world's alpha dog. By getting into bed with the Chinese and their cheap goods, the USA has lost some of their sovereignty. Some would view this as a threat by China to coerce the US to begin managing their debts responsibly since China is the largest holder of US debt. If US debt receives a downgrade, China's the one holding the bag of bonds that have now instantaneously diminished in value. With a debt level of $14 trillion, how will the future American generations ever cope with such a suffocating burden of owing the Chinese and the rest of the world all that money?
The Truth About America:
Here's the scenario: If I borrowed hundreds of billions of dollars from banks all over the world, took this money and went out and bought the fastest cars, the largest mansions, the most prestigious sports teams, enormous yachts, pristine real estate all over the globe and whatever else could only be purchased by a multi-billionaire, would I be the richest man in the world?
People would look at me and see that I owned all these marvelous possessions, and they would assume that would have to be the richest man in the world. The appearance of so much wealth would automatically make me the richest man in the world, right?
False. Although I would technically own all of these assets, I would have one massive liability, which would be the debt to the bank. This debt to the bank would be real, hard, tangible, currency that I would eventually have to pay back. The assets I own would have these gigantic liabilities attached to them. It's fundamental accounting. Assets and liabilities. Even though I'd have the most assets in the world, my net worth would actually be $0.
This scenario explains what is happening with the USA today. Although they appear to be rich because they possess so many sought after goods and services, the truth is, these luxuries were only acquired with debt. Anyone can go out and borrow money and buy themselves a big screen TV or Corvette, thus projecting an image of affluence. However, when you crunch the numbers and incorporate the debt a person, or a nation, subjected themselves to to acquire that wealth, you'll see that there's no actually NET wealth there at all.
The US currently has a debt of over $14 trillion. Not only does this entire debt have to be paid off, every day it doesn't get paid off, interest is accumulated on this debt and paid to the foreigners who hold this debt. This represents money flowing out of the USA. Over time, the US will have to part with $14 trillion leaving their borders into the hands of foreigners, plus all of the interest that has accumulated on the debt.
Is the US really the richest country in the world, or is it simply the guy next door who just bought a bunch of new toys but will be paying off his $75,000 CC bill for the next 30 years?
I thought you were gone studying vocabulary, but you came back with the same vocab!
Or a kid that's in his second year of college.
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we had no idea. We would've asked a long time ago. Guys, listen to this guy....he took a course!