Emily Kaiser: Yahoo News - China warns US debt-default is "playing with fire".

Republican lawmakers are "playing with fire", by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China's central bank said on Wednesday. The idea of a technical default, essentially delaying interest payments for a few days, has gained backing from a growing number of mainstream Republicans, who see it as a price worth paying, if it forces the White House to slash spending, Reuters reported on Tuesday, but any form of default could destabilize the global economy and sour already tense relations with big US creditors such as China, government officials and investors warn. Li Daokui, an adviser to the People's Bank of China, said a default could undermine the US dollar, and Beijing needed to dissuade Washington from pursuing this course of action: "I think there is a risk that the US debt default may happen," Li told reporters on the sidelines of a forum in Beijing. "The result will be very serious, and I really hope that they would stop playing with fire." China is the largest foreign creditor to the United States, holding more than $1 trillion in Treasury debt as of March, US data shows, so its concerns carry considerable weight in Washington: "I really worry about the risks of a US debt default, which, I think, may lead to a decline in the dollar's value," Li said. Congress has balked at increasing a statutory limit on government spending, as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The US Treasury Department has said it will run out of borrowing room by August 2. If the United States cannot make interest payments on its debt, the Obama administration has warned of "catastrophic " consequences, that could push the still-fragile economy back into recession. "It has dire implications for the economy at a time when macro data is softening," said Ben Westmore, a commodities economist at National Australia Bank. "It's just a horrible idea," he said. Financial markets are following the US debate, but see little risk of default. (Yeah, right!) US Treasury prices were firm in Europe on Wednesday, supported by a flight to their "perceived" safety, on the the back of the Greek debt crisis and worries about a slowdown in the US economic growth. Marc Ostwald, a strategist with Monument Securities in London, said markets were working on the "assumption" that the US debt story "will go away", but nervousness would grow if a resolution were not reached in the next five to six weeks. The Republican's "theory" is that bondholders would accept a "brief delay" in interest payments, if it meant that Washington finally addressed its long-term fiscal problems, putting the country in a "stronger" position to meet its debt obligations at some time in the far distant future! But interviews with government officials and investors show that they consider a default such a grim possibility that it was nearly impossible to imagine. "How can the US be allowed to default?" said an official at India's central bank. "We don't think this is a possibility, because this would then create a huge global panic." Indian officials say they have little choice but to buy US Treasury debt, because it is still among the world's "safest", and most liquid "investments". According to US data, it held $39.8 billion in US Treasuries as of March. The Indian officials declined to be identified, because they are not permitted to speak to the news media!!
My resolution: Mr. President, Stop your useless wars in Iraq and Afghanistan, and stop feeding your war machines!