World keeps faith in Treasuries if not U.S. politics

Long-term Investment

“The United States cannot take this hard-earned reputation for granted,” he told the IMF’s steering committee.

That reputation may be intact. While Treasuries have become “mildly less attractive,” Reserve Bank of India Governor Raghuram Rajan said “we are not selling our U.S. assets, we are holding on to them.” Almubarak of Saudi Arabia, the world’s largest oil exporter, said “we are long-term investors” and “our long-term view is positive.”

“Our investment in U.S. Treasuries is a long-term investment so I don’t think there’s any major need for major revisions to how our reserves are invested,” Russian Finance Minister Anton Siluanov told reporters. “What’s happening today, I hope, is a fairly short-term situation.”

As of the end of July, Japan held $1.14 trillion of Treasuries, second only to China’s $1.28 trillion, according to U.S. Treasury Department data. Russia had $132 billion and India $59 billion.

Rare Position

Attention shifted to Senate leaders yesterday to find a deal that averts a default and restores full government operations. Earlier, Senate Democrats rejected a proposal from Senator Susan Collins, a Maine Republican, saying the debt-limit increase in her plan, to January, was too short to provide certainty, and the funding extension at Republican-preferred levels, until March, was too long.

With the government now partly closed for almost two weeks and an Oct. 17 deadline looming for a boost to its borrowing authority, the U.S. found itself in the rare position of being blasted for its economic policy making by foreign officials more used to being the subject of its ire.

“There is a chance future historians will see today’s crisis as the turning point when American democracy was shown to be dysfunctional,” Former Treasury Secretary Lawrence Summers said in an op-ed in the Financial Times today. The U.S. risks becoming “an example to be avoided rather than emulated.”

‘No Schadenfreude’

“In Europe we are very concerned,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said in a Bloomberg TV interview. “There’s no schadenfreude.”

Just two years ago, then-U.S. Treasury Secretary Timothy F. Geithner used the gathering of global policy makers to warn Europe that failure to resolve its debt crisis risked “‘cascading default, bank runs and catastrophic risk.” Japan has often been lectured for not beating deflation and China for the value of the yuan.

The fear, expressed by officials and bankers from around the world, is that failure by U.S. politicians to end their logjam would roil financial markets and cause recession. That concern was reflected in a call by the Group of 20 leading industrial and emerging economies for the U.S. to take “urgent action to address short-term fiscal uncertainties.”

“It’s quite obvious that if this situation were to last a long time, this would be negative, very negative for the U.S. economy and the world economy,” European Central Bank President Mario Draghi said Oct. 12 in Washington.

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