Even if a rating downgrade is avoided, an agreement that doesn't have a "significant and credible deficit reduction plan over the long-term" will lead to a "negative outlook" on the Aaa rating (indicating the rating could go down in the next year or so), Hess added.
Outspoken Chinese economists have warned that China should stop buying US Treasuries, worrying the US government securities will be more risky due to the nation's deficits.
The strongest remarks came from Li Daokui, an adviser to the Chinese central bank, who urged US politicians to assure China that its massive investments in Treasuries are safe, Reuters reported last week.
Li said there is a risk that a US debt default may occur, but John Taylor, a professor of economics at Stanford University in California, doesn't believe there is a default scenario.
"There is no default scenario for the US - we always pay our debts," Taylor said. "China should be thinking about other problems such as inflation, the exchange rate and the overheating of the economy; Decisions about foreign assets are largely dependent on their decisions on the exchange rate, that is the issue."
Taylor said the reason China buys US Treasuries is to prevent the exchange rate from appreciating so much.
David Backus, a professor from Stern School of Business at New York University, said it is natural for buyers to be concerned but he sees no reason to stop buying it.
"Over the last few years, US debt has looked a lot better than European debt," Backus said.
Fan Jishe, a professor of American studies with the Chinese Academy of Social Sciences, thinks China should take a cautious approach in increasing its holdings of US bonds because a decision not to raise the debt ceiling would intensify China's concerns.
"The recent decision of the Congress could result in a tremendous cash back-flow to the US because the country needs more greenbacks to stimulate its economy and employment," Fan said.
"But on the other hand, this is not bad news for China because the cash back-flow to the US will ease China's inflationary pressure."
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Source:China Daily
Weekly review
Outspoken Chinese economists have warned that China should stop buying US Treasuries, worrying the US government securities will be more risky due to the nation's deficits.
The strongest remarks came from Li Daokui, an adviser to the Chinese central bank, who urged US politicians to assure China that its massive investments in Treasuries are safe, Reuters reported last week.
Li said there is a risk that a US debt default may occur, but John Taylor, a professor of economics at Stanford University in California, doesn't believe there is a default scenario.
"There is no default scenario for the US - we always pay our debts," Taylor said. "China should be thinking about other problems such as inflation, the exchange rate and the overheating of the economy; Decisions about foreign assets are largely dependent on their decisions on the exchange rate, that is the issue."
Taylor said the reason China buys US Treasuries is to prevent the exchange rate from appreciating so much.
David Backus, a professor from Stern School of Business at New York University, said it is natural for buyers to be concerned but he sees no reason to stop buying it.
"Over the last few years, US debt has looked a lot better than European debt," Backus said.
Fan Jishe, a professor of American studies with the Chinese Academy of Social Sciences, thinks China should take a cautious approach in increasing its holdings of US bonds because a decision not to raise the debt ceiling would intensify China's concerns.
"The recent decision of the Congress could result in a tremendous cash back-flow to the US because the country needs more greenbacks to stimulate its economy and employment," Fan said.
"But on the other hand, this is not bad news for China because the cash back-flow to the US will ease China's inflationary pressure."
1 2
Source:China Daily
Weekly review
