US debt deal a temporary fix

US debt deal a temporary fix

The US government is back in business after a last-minute deal late Wednesday night in Washington prevented the government from defaulting on its loans.

However, experts said that the debt-ceiling crisis will raise its head again and China must refrain from holding massive US dollar assets.

The US Congress passed a bill on Wednesday to extend the nation's borrowing authority and end a 16-day partial shutdown of the government just two hours before the deadline beyond which the Treasury had warned it might not be able to pay its bills.

But the measure adopted by Congress only funds the government until Jan 15 and allows it to borrow freely until Feb 7.

Beijing said it welcomes the progress in resolving the issue.

"The US is the largest economy in the world, and the proper resolution of this issue serves not only its own interests but also world economic stability and development," Foreign Ministry spokeswoman Hua Chunying told reporters at a regular news briefing on Thursday.

Her comments came as China's Dagong Global Credit Rating downgraded the US sovereign rating to A- from A with a negative outlook.

Markets cheered the deal, with the Dow Jones Industrial Average, Nasdaq and S&P 500 all closing up by more than 1 per cent on Wednesday. Shares in Tokyo, Singapore and Sydney had gained slightly by Thursday afternoon.

But the dollar and European shares fell on Thursday as market relief at the last-minute deal gave way to worries over the economic impact of the 16-day government shutdown and the prospects of a re-run early next year.

Chinese observers warned that another crisis is possible within months, and the uncertainties will add pressure to the appreciation of the yuan and increase the risks of China's huge reserves of US debt.

Purchase this article for republication.

BRANDINSIDER

SPONSORED

Most Read

Your daily good stuff - AsiaOne stories delivered straight to your inbox
By signing up, you agree to our Privacy policy and Terms and Conditions.