LECTURE FROM CHINA – AT 11:47 A.M. ET:  For years many have warned that China holds too much of our debt, and could start demanding things of us in a financial crisis.  Well, the financial crisis is here, and China is demanding things. 

NEW YORK/SHANGHAI (Reuters) - China bluntly criticized the United States on Saturday one day after the superpower's credit rating was downgraded, saying the "good old days" of borrowing were over.

Standard & Poor's cut the U.S. long-term credit rating from top-tier AAA by a notch to AA-plus on Friday over concerns about the nation's budget deficits and climbing debt burden.

China -- the United States' biggest creditor -- said Washington only had itself to blame for its plight and called for a new stable global reserve currency.

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's official Xinhua news agency said in a commentary...

...In the Xinhua commentary, China scorned the United States for its "debt addiction" and "short sighted" political wrangling.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," it said.

It urged the United States to cut military and social welfare expenditure. Further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil, it said.

COMMENT:  Welcome to the new world.   China, not exactly a friend of the United States, now demands that we reduce our defense budget.  Gee, I wonder why.  Next it may well demand that we remove military assets from Asia.  And believe me, many Americans would be willing to go along, and not all of them will be liberals.

It is absolutely true that we got ourselves into this.  Both parties are to blame.  Now we have to get out of it, and it will be painful.  If we don't get out of it, there is risk of a further downgrade to the level of financially troubled nations like Spain. 

Financial observers differe as to whether the downgrade will have an immediate effect (Monday) on the stock market.  Some argue that the market had already taken into consideration the probability of a downgrade.  Others suggest that the stock market doesn't seem to have any connection with reality anyway.

August 6, 2011