Is the U.S. Government on the Verge of Defaulting?

The U.S. government is functioning by borrowing money from abroad. Specifically, China. Without the Chinese buying up our debt our country would be bankrupt. This is criminal in it's implications. How do you allow a great power to be in hock to our principal adversary. A nation that is still officially a Communist country, and that is hostile towards us. It is madness. China could literally blackmail us. Never mind trying to stop them from oppressing their population or supporting oppressive regimes (including Darfur). China is spying on us and stealing our technology without much of an outrage from the worthless U.S. government. We are forced to watch U.S. politicians going to Beijing to beg for help. Washington is betraying America by failing to defend us from our enemies, current or future.

Secretary of State Hillary Rodham Clinton on Sunday urged China to keep investing its substantial foreign-exchange reserves in U.S. Treasury securities, arguing "we are truly going to rise or fall together."

China is the biggest foreign holder of U.S. debt, which helped finance the spending binge the United States went on before the current economic crisis. Some experts have expressed concern that China's substantial holding of U.S. debt gives it increased leverage in dealings with Washington because any halt in Chinese purchases would make it more difficult to finance the government bailout and stimulus packages.

Clinton, in unusually direct comments on an interview with China's Dragon TV before returning to Washington, said that reality made it an imperative for China to keep purchasing U.S. Treasury bonds, because otherwise the U.S. economy will not recover and China will suffer as well.

"Our economies are so intertwined," she said. "The Chinese know that in order to start exporting again to its biggest market . . . the United States has to take some drastic measures with the stimulus package. We have to incur more debt."

"The Chinese are recognizing our interconnection," Clinton added. "We are truly going to rise or fall together. By continuing to support American Treasury instruments, the Chinese are recognizing" that interconnection.

China is becoming a major financial power that will eventually surpass us, at this rate:

China Development Bank, one of China’s largest state-owned enterprises, has agreed to lend $10 billion to Brazil’s Petrobras (PBR) in exchange for a long-term supply of oil - the latest illustration of how Beijing is using the global downturn to further its domestic agenda.

Money Morning first reported in January that China was building stakes in some of the world’s largest natural-resource companies, which have been made vulnerable by depressed commodities prices, tumbling profits and falling stock prices. In the scant few weeks since that report was published, Aluminum Corp. of China Ltd. (ADR: ACH), or Chinalco, has invested $19.5 billion in Australian/British mining giant Rio Tinto PLC (ADR: RTP), and China Minmetals Corp. acquired Australian zinc miner Oz Minerals Ltd.

China Development Bank has been particularly active. Earlier this week, the bank lent $15 billion to OAO Rosneft Oil Co., Russia’s state-owned oil company, and $10 billion to the Russian state pipeline monopoly Transneft (TRNFF.PK). In return for the needed financing, Russia agreed to supply China with 15 million tons of oil annually for 20 years.

China Development Bank struck a similar deal with Petrobras Friday, agreeing to loan the Latin American energy giant $10 billion to help finance deepwater oil exploration off the coast of Brazil.

[...]Brazil is necessarily the country that comes to mind when taking inventory of the world’s top oil producers. It currently has about 12 billion barrels of proven reserves, but that figure could grow substantially now that a number of very rich deposits have been found off Brazil’s shores.

Petrobras happened across the second-largest oil find in two decades last year when it found between 5 billion and 8 billion barrels of untapped light oil in the Tupi basin. Even more impressive are the unofficial figures from a new reservoir, known as Carioca. That field could hold 33 billion barrels of oil and gas, which would make it the world’s largest discovery in at least 32 years.

With discoveries like these, Brazil, currently ranked 13th on the list of the world’s top oil producers could, could easily move into the top ten.

[...]Developing oil fields such as these will be very costly and with crude oil trading below $40 a barrel, financing is imperative. In that sense China couldn’t have timed its investment in Petrobras any better.

Petrobras said it plans to invest $174.4 billion from 2009 through 2013, compared with the $112.4 billion planned for investment for 2008-12. The company will invest $28.6 billion in 2009 alone.

In 2008, trade between China and Brazil totaled $36 billion, making China Brazil’s second largest trading partner.

The greatest beneficiary of the Stimulus package will be the Chinese.

It is doubtful whether we can still describe ourselves as living in the American era or, indeed, the Age of the West. If not yet quite over, both are certainly drawing to a close, and it seems likely that the effect of the financial meltdown will be to accelerate the rise of China as a global power. The contrast between the situation in China and that in the US could hardly be greater, even though it has been partially obscured by the depressive effect of the western recession on Chinese exports and on China’s growth rate. While the US economy is contracting, China’s grew at roughly 9 per cent in 2008 and is projected to grow at about 6 per cent in 2009. Its banks, far from bankrupt like their US counterparts, are cash-rich. China enjoys a large current account surplus, the government’s finances are in good order and the national debt is small. This is a crisis that emanates from the US and whose impact on China has been essentially indirect, through the contraction of western markets. It is the American model that has failed, not the Chinese.

One of the factors that intensified the Great Depression, and indeed was part cause of it, was Britain's growing inability to continue in its role as the world's leading financial power, which culminated in the collapse of the gold standard in 1931. It was not until after the war, however, that the US became sufficiently dominant to replace Britain and act as the mainstay of a new financial system at the heart of which was the dollar. The same kind of problem is evident now: the US is no longer strong enough to act as the world's financial centre, but its obvious successor, namely China, is not yet ready to assume that mantle. This will undoubtedly make the search for a global solution to the present crisis more difficult and more protracted.