America: The Post-Independence Era

Lenders are not sentimental. They can’t afford to be, not if they want their money back. They look at the borrower’s collateral, how much cash flow exceeds debt service, history of living up to his promises, and many other factors. When the borrower starts talking about how some new, unproven schemes are going to (eventually) enable the loan to be repaid, the alarm bells go off. The borrower may think he’s instilling confidence, but lenders start holding back (not all at once because they have to protect their investment), all the while smiling and nodding.

China repeated its call that international trade be conducted with a new currency to replace the dollar. Dollars are obligations of the U.S. government, and China, the biggest holder of dollars, is signaling that future funds will not be advanced so readily.

In its annual financial stability report issued on Friday, China's central bank once again declared there were serious problems with the global monetary system's reliance on a single dominant currency - the dollar. An estimated 65 percent to 70 percent of China's $2 trillion in foreign exchange reserves, the world's largest stockpile, is held in dollar-denominated assets.

The People's Bank of China also warned the United States on Friday about its very expansionary monetary and fiscal policies.

India, too, holds hundreds of billions of dollars and has joined the cautionary chorus questioning the financial strength of the United States and its currency.

President Obama's supporters promised that he "ha[d] a comprehensive plan to put America back on its feet and restore our nation’s reputation." If this is the plan, it’s not working. © 2009 Stephen Yuen