U.S. President Barack Obama remained largely silent as China, the largest foreign holder of U.S. debt, demanded Saturday that America confront its "addiction to debts" in the wake of Standard & Poor's decision to downgrade the U.S. credit rating.
The president, spending the weekend at Camp David, left it to press secretary Jay Carney to say it's clear Washington "must do better" in tackling soaring deficits and other economic woes.
A statement from Carney said talks that produced Tuesday's $2 trillion US compromise on raising the country's borrowing limit had been too drawn-out and "divisive." But the statement didn't directly address Friday's move by Standard & Poor's to drop U.S. government debt to AA+ from triple-A.
However, later in the day administration officials sharply disputed S&P's judgment and challenged its numbers, saying the deal's deficit-cutting value had been drastically understated. They charged the company's analysis was rushed and faulty.
"The magnitude of their error combined with their willingness to simply change on the spot their lead rationale in their press release once the error was pointed out was breathtaking," said Gene Sperling, head of the White House council of economic advisers. "It smacked of an institution starting with a conclusion and shaping any arguments to fit it."
But in a conference call with reporters on Saturday, S&P officials said the company's carefully reasoned conclusion is that political gridlock in Washington has made the nation increasingly unable to control its debt.
The downgrade delivered a potentially serious blow to the nation's struggling recovery, raising the prospect of higher interest rates and continuing stock market losses after the big selloff of the last two weeks.
S&P told investors the deficit accord "falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."
The day began with Chinese officials issuing a blistering commentary on the situation.
China currently owns $1.2 trillion of U.S. Treasury debt, the largest stake of any central bank. The commentary carried by the state-run Xinhua News Agency was Beijing's first official response to the S&P decision.
"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," Xinhua said.
It said the rating cut would be followed by more "devastating credit rating cuts" and global financial turbulence if the U.S. fails to learn to "live within its means."
"China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," it said.
With Obama absent in replying to the S&P downgrade, it was up to aides to defend his administration, noting that two other ratings agencies — Moody's and Fitch — are for now keeping the triple-A rating for U.S. debt.
Carney added that the president will urge committee members and other lawmakers "to put our common commitment to a stronger recovery and a sounder long-term fiscal path above our political and ideological differences."
Xinhua said the U.S. must slash its "gigantic military expenditure and bloated social welfare costs" and accept international supervision over U.S. dollar issues.
Last month, China's top general, Chen Bingde, also linked America's financial woes to its military budget and asked whether paring back on defence spending wouldn't be the best thing for U.S. taxpayers.
Such comments reflect Beijing's desire that Washington reduce its military presence in Asia. The U.S., rattled by China's military buildup, also routinely chides Beijing for its fast-growing defence spending.
Xinhua also suggested a new global reserve currency might be necessary to replace the dollar, a position China has frequently advocated.
"Mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad," Xinhua said. "To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."
Jitters felt in Asia
Jitters over the U.S. handling of its debt problems were also being felt elsewhere in Asia, said Kishore Mahbubani, Singapore's former ambassador to the United Nations.
The dean of Singapore's Lee Kuan Yew School for Public Policy said the last-minute agreement by the U.S. Congress to lift the debt limit and avoid default has policymakers in Asia questioning the stability of U.S. global leadership.
"It's definitely undermined U.S. credibility," Mahbubani said late Friday. "Everyone is wondering if you have such a dysfunctional political process, how can you provide global leadership. It's very dangerous for the world."