There are a lot of Obama jokes floating around in the US these days about the government shutdown and how the President would now have to reduce the White House cleaning staff and wash his own laundry and to stretch it a little further, clean his toilets as well. While everybody in social circles is talking about the shutdown, there is lack of media coverage on how concerned the average American is about the shutdown snowballing into a major crisis. The media coverage is pretty much centred around which senator said what, without any alarm or analysis about the stalemate precipitating into a default crises.
Most of the mainstream newspapers here have a coverage of the event which almost seems like government propaganda. Virtually all commentators are unanimous in their view that excessive government spending is not a problem and argue that the US Congress is being hyperbolic in not raising the country’s debt ceiling. They seem to suggest that if the lender does not have a problem lending, then why should the good borrower worry about debt ceilings. For example, an article by media outlet Reuters claims that, default or not, Asian investors and central banks are ‘hostage’ to US debt (http://goo.gl/EHZvZT). Their argument essentially revolves around the delusional notion that Asian investors believe an American default to be “unthinkable”. In the article, Reuters peddles its theory based on an unnamed Japanese investment source (an ‘insider’), as if it truly represents the whole of Asia!
The reality is that Asia and China, in particular, have been preparing for a loss of confidence in the US Treasury market for quite some time now. Think about Asian central banks’ significant gold purchases and diversification away from US Treasury. Most central banks in Asia have converted their long-term bond holdings in US Treasuries to short-term bond holdings; meaning, they are ready to liquidate their bonds if need be. The strategic importance of the US paper has been coming down over the years and it is no longer considered risk-free. Overall purchase levels of Treasuries for Asian countries are either static, or falling depending on