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Talk of the Day -- U.S. debt crisis triggers global mobilization

2011/08/07 20:19:25

World leaders are scrambling to deal with a financial storm created by the debt crisis in the United States and were working over the weekend to search for ways to calm jittery markets.

In Taiwan, the head of the the central bank and deputy premier spent a nervous Sunday trying to avert a stock market sell-off on Monday that could affect the Taiwan dollar's exchange rate.

Following are excerpts of major Taiwanese newspapers' reports on the response to the latest shockwaves triggered by Standard & Poor's downgrade of its U.S. debt rating Friday.

The United Evening News:

When the market opens on Monday, people will be watching how heavyweight stocks such as Taiwan Semiconductor Manufacturing Corp. (TSMC) will fare and if the government will intervene with its market stabilization fund.

How local private investors and short-sellers react to the market fluctuations in Japan and South Korea, which open one hour ahead, will also be key indicators of the future trend.

The central bank, which holds US$153.4 billion in U.S. debt, said it remained "fully confident" in U.S. Treasury bills because compared with bonds issued by other countries, they are safer and more liquid and yield more interest.

From Tuesday through Thursday, the U.S. will issue a total of US$72 billion in new bonds, and many foreign governments have shown considerable interest in bidding on them.

How keen central bankers actually are to bid for the new issues and what kind of yields emerge will be the best indicators of how the world will tide over this latest bout of financial instability.

In addition to its financial and economic impact, the lowered rating of U.S. debts will likely also have political repercussions.

In the U.S., the country's international influence will decline as a result of its economic problems and President Barack Obama's chances of getting re-elected in November 2012 will also become slimmer.

Internationally, though China and Russia will help the U.S. weather its current difficulties, they will also try to play a greater role in the future.

In Taiwan, with presidential and legislative elections set to be held early next year, if the ruling Kuomintang (KMT) does not handle the current international financial crisis well, it may suffer setbacks in the elections.

Most of America's allies in Asia and Europe have expressed support for the U.S. government, saying they will stick to their Treasury bill holdings.

China and Japan said they will continue to buy U.S. government bills, and South Korea said Koreans did not need to worry about the downgrade's impact on Korea's economy and finances.

Taiwan and Hong Kong's assessments were the same: the downgrade would not create a serious impact on their economies.

Russia's response was that there was not a substantial difference between an AAA rating and the AA+ rating given by Standard & Poor's Friday.

France questioned the basis on which the ratings agency downgraded U.S. debt, while Britain said the agency's downgrade was completely within its expectations. (Aug. 7, 2011)

The Apple Daily:

Standard & Poor's did not just lower its rating of U.S. government debt by one notch, it also had a negative outlook on the prospects for the government's debt repayment capability and said it would further downgrade its rating if no improvements were made soon.

That assessment will raise the interest rates the U.S. government has to pay on its Treasury bills, costing it about US$100 billion per year in additional interest expenses. (Aug. 7, 2011)

The Liberty Times:

Liang Kuo-yuan, president of the Taipei-based Polaris Research Institute, said this was the first time since 1910 that the credit rating of U.S. Treasury bills had been downgraded, a "big blow" to the world's confidence in U.S. finances.

The news came as the world was facing a number of negative trends, adding another variable to the already fragile world economy and increasing the risk of a "second recession," Liang said.

Professor Shen Chung-hua of National Taiwan University's Graduate Institute of Finance said the AA+ rating per se was not a problem, because it is internationally acceptable. The problem, he said, was the psychological impact that could bring down the prices of U.S. debt and reduce the values of assets related to the debt.

The Financial Supervisory Commission (FSC) noted that the U.S. did increase its debt ceiling, averting default on its debt obligations, but understood that different ratings agencies had different views on the issue.

The FSC said it would closely watch the development of the U.S. debt crisis and ask local banks and insurance companies to pay attention to the risks associated with U.S. debt. (Aug. 7, 2011)

(By S.C. Chang)