Washington blames Beijing for everything, even the ‘debt ceiling’

beijingwalker · May 8, 2023

Washington blames Beijing for everything, even the ‘debt ceiling’

China has, implausibly, been dragged into the debt stand-off in the Capitol because of the dysfunctional nature of US domestic politics

Published: 9:00pm, 8 May, 2023

In Washington these days, “China” is a curse word that is cited as an excuse for everything. So, however implausibly, two leading Democrat figures have warned of the dire consequences of the US Congress failing to lift the debt ceiling, by calling out China. Seriously! I am sure Beijing will be blamed for Joe Biden’s creeping senility soon – perhaps by casting an ancient Chinese spell.

Before the Senate Armed Services Committee last week, Director of National Intelligence Avril Haines warned that China and Russia would exploit the situation if the US government defaulted on its debt.

She said it was “almost a certainty” that the two countries would exploit such an event for propaganda purposes through “information operations” and cite it as evidence that the US political system was dysfunctional.

Nevertheless, she admitted it was mostly her own guess because the US intelligence community, of which she is ultimately in charge, had not come up with an independent assessment. Even so, she believed such a default would create “global uncertainty” about the value of the dollar, US leadership and American institutions.

I agree with Haines. Moscow and Beijing would certainly cite such a historic debt default, which would indeed roil the global capital markets, as evidence of US political dysfunction, if not self-destructiveness. The thing is that every other country would arrive at the same conclusion because it’s not disinformation or propaganda – it would simply be true.

But Haines is not alone. A few weeks ago, in an op-ed titled “Republicans Are Playing into the Hands of Putin and Xi” – yes, seriously – former US secretary of state and failed presidential candidate Hillary Clinton made the same warning.

“[Speaker of the House Kevin] McCarthy repeatedly invoked the threat of Chinese competition as justification [for the debt ceiling stand-off],” she wrote.

“The speaker is right that this debate has significant national security implications – just not the way he says … Congressional brinkmanship on the debt ceiling sends the opposite message to our allies and our adversaries: that America is divided, distracted and can’t be counted on.”

And, here comes the punchline: “Today the competition between democracies and autocracies has grown more intense. And by undermining America’s credibility and the pre-eminence of the dollar, the fight over the debt ceiling plays right into the hands of Xi Jinping of China and Vladimir Putin of Russia.”

Well, I suppose you can make the same argument about every big societal problem and crisis America is facing today. Gun violence – that makes the US look unsafe to the world and plays into the hands of Xi and Putin. Addiction and mental health crisis – that makes Americans look crazy to the world and plays into the hands of Xi and Putin. Widespread urban homelessness – that makes the US, the richest country in the world, look like it can’t house millions of its own citizens and plays into the hands of Xi and Putin. The obesity crisis – that makes America look, well, for lack of a better word, fat, and plays into … hey, Xi might be OK with that as he is kind of plump himself but you know that Putin guy who likes to take off his shirts to show off his ageing chest muscles …

Even though most people assume that the Republican blackmail would not be carried out, the fact that it has become a Republican ritual against a Democrat president means the damage to “the value of the dollar, US leadership and American institutions” has already been done.

For a long time, everyone thought owning US Treasury debt was risk-free; now they don’t because there is a risk, however slight. This has global consequences in finance, which has become highly mathematical in its valuation of assets.

To do that, you need a risk-free benchmark against which to measure the riskiness of the asset you are interested in. Now all those financial “quants” have to adjust and make different assumptions about that US Treasury benchmark that isn’t risk-free after all, thanks to the recurrent Republican tactic.

But politics on Capitol Hill is so dysfunctional today that you can’t call out political blackmail but have to drag in China (and Russia) as the bogeymen to make the case for lifting the debt ceiling, which is like arguing for the need to fix potholes in major roads.

No, it’s not Xi and Putin’s fault. Given the large Chinese holdings of US Treasuries despite some recent offloading, Beijing probably prefers maintaining their value and preserving the stability of the global capital markets over some short-term political gains.

Dear Avril and Hillary, it’s not other people’s fault. It may not even be your fault. But it is definitely your politicians’ fault, and the fault of the dysfunctional nature of contemporary US domestic politics. And no, that’s not foreign propaganda or disinformation. It’s a fact.