China and Japan urge U.S. to resolve debt fight, prevent default
HONG KONG (CNNMoney) Washington’s march toward self-inflicted financial calamity is setting off alarm bells around the world as general befuddlement turns into genuine concern over a possible default by the world’s lone superpower.
China and Japan — which hold a combined $2.4 trillion in U.S. debt — have called for a quick resolution to the crisis and expressed worries over the economic consequences of a default.
In the first official response by China, Vice Finance Minister Zhu Guangyao said that a solution must be found quickly in order to “ensure the safety of Chinese investments” and provide stability for economies around the globe.
“We ask that the United States earnestly take steps to resolve in a timely way the political issues around the debt ceiling and prevent a debt default,” he said. “This is the United States’ responsibility.”
Economists predict a default would do great harm to economies around the world. Investors would likely drop the dollar, an event that would stress other currencies. Equity markets would surely take a hit, and transactions pegged to the value of Treasuries would be difficult to execute.
The debt ceiling is a quirk of governance shared by few countries. Denmark and Japan have similar systems but no history of mixing borrowing limits and political brinkmanship.
A senior Japanese official, speaking to the Financial Times, said that country’s Ministry of Finance is “very worried,” and cited the market turmoil and “chaos” brought on by the failed House vote to authorize bank bailout funds in 2008.