Last week ended on an optimistic note for the U.S. stock market, prompting renewed optimism that the U.S. economy will lead the world out of the global recession. Is optimism warranted? According to this report in The New York Times, investors indeed may be on the verge of dispelling the cloud of gloom and doom they have been under. Why? Because they recently received some bad news about the economy, but it was not as bad as they expected, so they celebrated and hoped for the end of the downturn:
General Electric, the blue-chip corporation, was stripped of its triple-A credit rating, an emblem of business prowess it proudly held since 1956. But its rating fell just one notch, less than some analysts predicted. Shares of G.E. soared 13 percent. The Commerce Department reported that retail sales fell slightly in February — again, less than forecast. And the head of the beleaguered Bank of America said the lender probably would not need more government money, but other banks might. Less bad was good enough. The Dow Jones industrial average jumped 239.66 points, or 3.46 percent, to 7,170.06. The Standard & Poor’s 500-stock index leaped 29.38 points, or 4.07 percent, to 750.74. The Nasdaq composite index rose 54.46 points, or 3.97 percent, to 1,426.10.
The report goes on to note that a recovery is not imminent and that these kinds of rallies are common in recessions. Of far greater concern than the markets fluctuations is this remarkable statement by China’s premier about their $2 trillion investment in U.S. Treasuries, as reported by the AP:
“We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried,” Wen said at a news conference following the closing of China’s annual legislative session. “I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets.”
Did you ever think you would live to see the day that the United States is placed on notice by a foreign creditor? The Bloomberg service notes that the U.S. acted swiftly to reassure China:
The U.S. sought to ease Chinese Premier Wen Jiabao’s concern about the security of his country’s investments in U.S. government debt, reiterating pledges to cut the budget deficit in half in four years. “There’s no safer investment in the world than in the United States,” White House Press Secretary Robert Gibbs said yesterday at a briefing in Washington.
Though there is little fear that China will start selling their U.S. Treasuries (the Wall Street Journal reports this would not be in their interest) this incident raises concerns about the leverage a creditor country like China acquires over U.S. foreign policy. For example, how might this relationship of economic interdependence constrain U.S. policy toward Taiwan? I can’t help but wonder if last Friday will become a benchmark date for future historians, the date the post-Cold War era of U.S. hegemony ended and a new era of multipolarity began.
