U.S. Vice President Flies to Beijing and Tokyo, Replete with Begging Bowl

On 2 August extremist Congressional Republicans held a loaded pistol to the USA's triple A bond credit rating, acquired in 1917 in the midst of World War One, and pulled the trigger.

When the smoke cleared, there were back-slaps and high-fives all around as the obstructionists prided themselves on weakening, perhaps fatally, President Obama's re-election hopes for 2012 by presenting themselves as fiscally "responsible."

The world was not knocked off its axis and the U.S. did not enter the "end of days" so fervently wished for by Christian fundamentalists, but the global consequences of the Republicans' rash act are beginning to emerge, and it's not a pretty sight.

Not surprisingly, foreign markets have begun to question the viability not only of the U.S. financial structure, but the ability of the U.S. government to address forthrightly the issues arising from its profligate spending underwritten by borrowing, in light of the last three years of the global recession.

The consequences of this political brinkmanship are now becoming evident. Vice President Biden has now been dispatched to East Asia to sell the debt ceiling deal during trip to China and Japan.

Why? Why not Treasury Secretary Timothy Geitner?

Easy - he's not important enough, unlike the man a "heartbeat away from the presidency," and sending the Chief Executive would be too humiliating.

So, send Joe.

Why should Washington care what Beijing or Tokyo think?  Should they listen to Washington's dictates?

Not when China holds an astounding $1.166 trillion in U.S. Treasury bonds and Japan $911 billion.

The bills for the last decade of U.S. federal government bottomless fiscal binging, most notably on a bloated defense structure since 9-11 are now coming due, and the reality is that East Asia has an increasingly important role to play in propping up the U.S. economy, having invested in their Treasury notes.

Unlike the polite Japanese, Beijing's Red mandarins have been blunt about Washington's spending sprees with other people's cash. On 6 August China's Xinhua news agency, effectively the voice of the government, issued a statement that should have given Washington's congressmen pause, writing, "The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone."

Lest any inside Washington miss the implications of the statement, Xinhua continued, "China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets." Last but hardly least, in case the Washington Congressional fiscal party animals believe that others will forever pick up their tab Xinhua concluded, "International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country."

Hello????

Did anyone of importance in Washington note these comments? "International supervision over the issue of U.S. dollars should be introduced?" "A new, stable and secured global reserve currency may also be an option?"

Even in oh so polite Japan, a stalwart U.S. ally since Washington crushed them in World War Two, some are beginning to talk about bailing from Tokyo's commitment to treasury bonds.

Kenji Nakanishi, a parliamentarian in the new opposition Your Party group, which made significant gains in the July 2010 elections said, "The (government's U.S. Treasury bond)  holdings translate to Â¥1 million ($13,000) per Japanese taking this risk in shouldering U.S. debt, all without their fully being aware of it."

As Washington's debt loses its luster as a safe haven, so does the dollar, and the dollar's supremacy as the currency denominating oil prices on both NYMEX and London's ICE exchange may be drawing to a close. And the fact that both China and Japan are net energy importers complicates their unhappiness with U.S. governmental policies, as well as trying to downsize their Treasury commitments.

The biggest thing that financial markets hate is uncertainty, and Republican trashing to U.S. credit for short-term political gain has introduced uncertainty into the global financial markets. Biden is sure to have some Maalox moments in his discussions in Beijing and Tokyo, and one thing is becoming clear - the rest of the world is no longer willing to underwrite Washington's unending free lunch based on Wall Street's casino roulette.

Behind closed doors, Biden is likely to get an earful about "international supervision over the issue of U.S. dollars." 

As Bette Davis said 61 years ago in "All About Eve," "Fasten your seatbelts, it's going to be a bumpy night."

By. John C.K. Daly of OilPrice.com