Chinese Paper Xinhua Warns U.S. Headed Towards Fiscal Doom

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The last minute U.S. budget deal may have spared millions of Americans the burden of higher taxes amid a weak economic climate, but if American politicians can come so close to falling off a fiscal cliff, they are unlikely to "reach a deal to help their country climb out of an abyss," said China's Xinhua, a state-owned news agency.

In an English commentary, Xinhua acknowledged the United States' dominance as the world's largest economy, but cautioned that the country "simply cannot live on borrowed prosperity forever."

It wrote:

Many have long warned of the potential danger of falling off the 'fiscal cliff'. However, for some observers, the United States, with a total government debt of nearly 16.4 trillion U.S. dollars, has a bigger devil to fight with than the 'fiscal cliff' as far as long-term fiscal sustainability is concerned.

"For the Americans, their government has been in the red for too long. Since 2002, Uncle Sam has not tasted any government surplus in over a decade as it borrows heavily to support costly wars in the Middle East and to stimulate the economy out of a recession in the wake of the global financial crisis," it added.

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As America's largest creditor, China has a strong agenda in a healthy US economy. It sits on the world's biggest pile of foreign exchange reserves, worth $3.3 trillion, and as much as 70 percent of the holdings are invested in U.S. dollar assets, including U.S. Treasuries, according to analysts.

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Questioning the attractiveness of the American model, Xinhua said:

The American people were once better known for their ability to make tough choices on difficult issues. The Americans may be proud of their mature Democracy, but the political gridlock in Washington really looks ugly from an outsiders view.

"If you call over 600 billion dollars of tax increases and spending cuts a "fiscal cliff," the total U.S. government debt has created nothing but a "fiscal abyss" ... So the politicians have chosen to kick the can down the road again and again. But as we all know, the can will never disappear. Sometime and somewhere, you might trip over it and fall hard on the ground, or in the U.S. case, into an abyss you can never come out of," Xinhua warned. 

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