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Letters | US debt crisis is not America’s problem alone
- Readers discuss the ills of a US dollar-dominated financial system, the worrying vulnerabilities in US banks, turning Hong Kong school closures into an opportunity, and the long wait to become a member of the Hong Kong Golf Club
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As the recent troubles of several regional banks in the United States have shown, the Federal Reserve’s massive liquidity injections have led to severe asset bubbles. Poorly regulated regional banks have been accumulating operational risks, and the collapse of the cryptocurrency exchange FTX and downturn in technology investments dealt a major blow to confidence.
However, the most pressing issue for the US now is the government’s looming debt ceiling deadline. The US Congress must agree to raise the limit on borrowing before June 1; otherwise, the country risks defaulting on its debt and a downgrade of its credit rating.
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In the past, both political parties have eventually backed down and raised the limit. However, this continuous increase in debt is unsustainable, and with the Fed continuing to raise interest rates, the cost of servicing that debt is constantly rising. This problem, which weakens the attractiveness of US assets and harms the country’s competitiveness, is difficult to solve.
For a very long time, the US dollar’s reserve currency status has made US debt a “safe” asset that holds pricing power for global assets. However, with China now the world’s second largest economy and the US facing challenges as the leading economy, this stability is threatened.
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The Fed’s interest rate hikes have led to a strong US dollar but created havoc for other economies via the dollar-denominated credit system. To safeguard themselves, other countries are developing independent economic, financial and trade payment systems.
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