China, the largest foreign holder of U.S. debt, issued a scathing condemnation of American economic practices on Saturday, saying that "mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad."
Following the decision by the Standard & Poor's rating agency to downgrade the United States' credit rating a notch from AAA on Friday evening, the editorial in China's official Xinhua newswire warned that Beijing "has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets."
China currently has no other obvious options for the $1.1 trillion-plus that it holds in U.S. Treasuries, a fact that links Chinese interests to the stability of the dollar and makes the prospect of drastic action by Beijing highly unlikely.
The strong wording of the Xinhua piece, however, suggested a fraying patience.
The editorial began with the line "The days when the debt-ridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered." It ended at: "All Americans, both beltway politicians and those on Main Street, have to do some serious soul-searching to bring their country back from a potential financial abyss."
In Washington, the White House issued a statement from the press secretary, JayCarney. It said: "The president believes it is important that our elected leaders come together to strengthen our economy and put our nation on a stronger fiscal footing.
"The bipartisan compromise on deficit reduction was an important step in the right direction. Yet, the path to getting there took too long and was at times too divisive. We must do better to make clear our nation's will, capacity and commitment to work together to tackle our major fiscal and economic challenges....Over the coming weeks the president will strongly encourage the ...