News: The U.S. Economy

Gregg: "Budget Deficit Is Sending The U.S. To Third-Class Status As A Nation"

The U.S. is headed toward “third-class status as a nation” because of the budget deficit, according to Sen. Judd Gregg (R-N.H.), the senior Republican on the Senate Budget Committee. The moderate-conservative Republican criticized a rush of government spending for adding to the debt. But he also said entitlement spending is the real long-term issue.

Last year’s deficit was a record $1.4 trillion, up more than $900 billion from the previous year. Two bills account for much of the increase. Congress in 2008 approved a $700 billion bailout of the financial industry that was requested by the Bush administration. The Obama administration moved a $787 billion economic stimulus package through Congress. The bailout funds had bipartisan support; Sen. Gregg was one of a number of Republicans who voted to create the program. But the stimulus passed with only three GOP votes in the Senate, including Sen. Arlen Specter (Pa.), who switched to the Democratic party after the vote.

Sen. Gregg said he would support a move to freeze discretionary spending, but warned Democrats it would not be difficult for the GOP to use the deficit as an election-year issue. “We almost don’t have to do anything to explain it,” said Sen. Gregg. “This is not difficult to understand. We don’t want to be a debtor nation. We don’t want to be a third-class nation.”

China: "Low U.S. Interest Rates Threaten Global Economic Recovery"

China's top bank regulator said today that the weakening U.S. dollar and low interest rates are spurring speculation in stocks and property, distorting global asset prices and threatening the global economic recovery. Liu Mingkang, chairman of the China Banking Regulatory Commission, said the declining U.S. dollar and reassurances by officials that interest rates will remain low were encouraging a "massive" U.S. dollar carry trade — the practice of borrowing money at low rates in one currency to invest in assets in another currency that offer a higher return.

China is the largest foreign holder of U.S. debt, mostly in the form of Treasury securities, which have declined in value due to the dollar's weakness. At the same time, record-low U.S. interest rates, intended to encourage lending to businesses struggling to recover from the recession, are spurring investors to transfer funds out of the safety of low-yield dollar-denominated investments such as Treasury securities and into higher-yielding assets like stocks, commodities and emerging-market currencies. Strong flows of such funds into China's markets, where share prices have surged by more than 70 percent this year, and property have raised worries over a possible bubble in asset prices that might later implode.