Here’s the latest…

A Chinese ratings house has accused the United States of defaulting on its massive debt, state media said Friday, a day after Beijing urged Washington to put its fiscal house in order.

“In our opinion, the United States has already been defaulting,” Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.

A couple things here…this is actually just another warning.   Albeit one from someone we should listen to.

Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies — eroding the wealth of creditors including China, Guan said.

[full story]

This is actually more of the same lament from China.  They have their currency pegged to ours (mostly) so when we do some “quanitative easing” for our currency, so do they, whether they like it or not.    China, of course, does have the option of letting the yuan appreciate on its own and quit hiding behind the dollar, but my guess is that they’ll wait until after the collapse to try and claim they already did that.

The article then continues with something that has become a political truth, but is a real-world fiction.

The US government will run out of room to spend more on August 2 unless Congress bumps up the borrowing limit beyond $14.29 trillion — but Republicans are refusing to support such a move until a deficit cutting deal is reached.

Ratings agency Fitch on Wednesday joined Moody’s and Standard & Poor’s to warn the United States could lose its first-class credit rating if it fails to raise its debt ceiling to avoid defaulting on loans.

 That part I bolded in not technically accurate.  The U.S. has already hit our debt limit.  We did so over a month ago.  What the Treasury Secretary did was make the mistake of telling folks he could keep things going until a drop-dead date, August 2nd.   He’s doing this by shifitng money around.  In the real world, this is the “Pawn Shop” step.   Yes, it might work and keep you afloat, but it’s going to cost you quit a bit more just to stay even because of the nature of the transcations.      This is what Treasury is doing now, by raiding pension funds to keep the lights on and the troops fed.   We’ll have to pay more to pay that back.

Now, you may think it’s not a big deal that China is saying we are defaulting.   You may think that, because you are not be aware of this…

China is by far the top holder of US debt and has in the past raised worries that the massive US stimulus effort launched to revive the economy would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.

Beijing cut its holdings of US Treasury securities for the fifth month in a row to $1.145 trillion in March, down $9.2 billion from February and 2.6 percent less than October’s peak of $1.175 trillion, US data showed last month.

Now…think about it from the creditors perspective.    You have some extra money.   You give it to your buddy across the way.   You notice he’s been going on hunting expeditions (wars), giving lavish bonuses to favored friends (tax cuts), had puts paying you back well down on the list.   You can’t really *force* that guy to pay you back, after all, he goes on LOTS of hunting expeditions, but you can make it more difficult for him to borrow from other people.

This is what China just did.

The Republicans requiring Medicare to be sacrificed on the altar of debt before they sign off on the debt limit increase is having real and serious consequences to the U.S. (and world) economy.   They think this is going to benefit them in the long run, but I’m afraid that’s not how it’s going to work, no matter how many Fox’s sell that version of history.