US Fiscal Health Worse than Europe: China Advisor

Many currency analysts are purplexed by the mini dollar rally which followed the QE II announcement in early November. At about the same time (another one of) the Fed's bond buying scheme was announced, the strangely coincidental bad news about a debt default came out of Ireland, which trumped the money printing shenanigans of the US Federal Reserve, and the Dollar's imminent decline was eclipsed by a falling Euro. But does a declining Euro make the economic situation in the US any better?

Not according to Li Daokui, an academic member of China's central bank monetary policy committee. He states:

"For now, market attention is still on Europe and for the coming 6-12 months, it will not shift to the United States," Li said, when asked about U.S. President Barack Obama's plan to extend tax cuts for all Americans."

Comment: The tax cut issue is hilarious-- in that while EU nations are facing austerity measures and budget cutbacks, the US is printing money at breakneck speed and extending tax cuts in the face of mammoth spending programs and a future of grossly under-funded programs like Medicare and Social Security-- let's not forget pensions and redlined state budgets while we're at it. While both suffer from the same disease, the EU is attempting to contain the fiscal damage with austerity and cutbacks, while the US is accelerating into the abyss of spending/debt nirvana.

"But we should be clear in our minds that the fiscal situation in the United States is much worse than in Europe. In one or two years, when the European debt situation stabilizes, attention of financial markets will definitely shift to the United States. At that time, U.S. Treasury bonds and the dollar will experience considerable declines."

In other words, at some point the EU austerity measures and budget cutbacks (the economic pain necessary to reign in on years of fraudulent accounting and drunken spending policies) will work to quell the market skepticism and bring to light that the US has neglected to address their fiscal imbalances and remains mired in a sea of red ink. The difference being is that the US is unwilling to accept austerity and instead chose to grease the wheels of an overheated printing press in an effort to hide their problem.

Conclusion? The US cannot forever sell the story of default and a collapsing EU, while continuing to run the same ruinous financial policies here in the states, and not suffer the same- or arguably worse, fate.

U.S. fiscal health worse than Europe's: China adviser