China warns on US Stimulus related Debt

China has issued a warning on U.S. debt:

"To rescue the ailing U.S. economy by increasing government borrowing will create a record-high federal deficit," said Yu Zuyao, economist with the Chinese Academy of Social Sciences, a government think tank.

"This can further lead to catastrophic consequences such as serious inflation and U.S. dollar depreciation," he said Tuesday.

"Buying U.S. government bonds amid an economic downturn, [a purchase] that is not based on the sound performance of the U.S. economy itself, indicates a huge bubble," said Zuo Xiaolei, chief economist of China Galaxy Securities.

e in the interests of the United States and other countries and would exacerbate the crisis."

Said Zuo: "U.S. dollar depreciation is inevitable in the long run. China should prepare and reduce its holdings of U.S. Treasuries to a proper size."

China is the largest holder of U.S. debt. Japan, whose economy just had a major contraction is next.

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According to Dr. Wing Thye Woo of U.C. Davis, China needs to's in the same global boat with the rest of us.:-) China has serious problems of its own at home. We also need to use stimulus dollars to retool our productive capacity, instead of focusing on creating consumer demand. We need to bite the bullet and fix our industrial base NOW. China will be less worried if it can see eventual balance on the horizon.