China commentaries demand U.S. responsibility on "fiscal cliff"

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shiba-ken wrote:

Its ironic that these words are coming from the country who defaulted on their loan with the U.S. government They owe almost 1 trillion U.S. dollars to the United States. Here is the exerpt from the article from the China Daily Mail….

The story begins nearly 100 years ago, in 1913, when the government of China began issuing bonds to foreign investors and governments for infrastructure work to modernise the country. As the country fell into civil war in 1927, paying these debts became increasingly difficult and the government fell into default. Even so, in April 1938, the Nationalist government of China began to issue U.S.-dollar denominated bonds to finance the war against Japan’s brutal invasion.

Locked in a pitched battle for survival, the government issued these bonds into 1940. As part of its wartime financial aid, the U.S. government further provided a $500 million credit to China in March 1942, shipping gold there and helping to stabilise the currency. In return, it appears that the U.S. government redeemed some of these dollar-denominated bonds. But China doesn’t appear to have repaid this debt either, according to State Department records, and the declaration of the People’s Republic of China in 1949 ended decades of political, military and financial cooperation.

While successor governments are usually bound by the debts of predecessor governments, the new Communist government refused to pay any of these claims. The issue lay dormant for decades, just as the bilateral relationship did. Then, in 1979, as part of normalising relations, Washington released government financial claims regarding the expropriation of American property and appears to have dropped the matter of the war debt entirely. However, it is one thing for government decision-makers to let go of government debt, however questionable that is.

And it is entirely another thing for individual citizens to press their claims. Some U.S. investors tried to sue the Chinese government in the 1980s and 1990s. However, the Foreign Sovereign Immunities Act makes it very hard for any U.S. citizen to sue a foreign government in U.S. courts because the law generally says that U.S. courts do not have jurisdiction.

The law usually only allows the jurisdiction of U.S. courts if a foreign government waives its immunity, commits a tort or seizes property. Recent additional exceptions have been added for terrorism. China lost an initial summary judgement for failing to appear in court but, with the urging of the U.S. State Department, later appeared in court and successfully argued that U.S. courts did not have jurisdiction.

Today, the Chinese bonds held by U.S. investors may be worth as much as $750 billion, according to Jonna Bianco, president of the American Bondholders Foundation, who estimates the value of bonds held by investors worldwide may be $10 billion, including interest and penalties for default.

Over the years, congressional interest has been piqued. The late Rep. Henry Hyde convened hearings in 2003 and advocated that the bondholders press their case. In March, Republican Rep. Ken Calvert and Sen. James Inhofe of Oklahoma, along with eight other members of Congress, asked the Government Accountability Office to look into the matter. In April, Rep. Gary Miller inquired with Treasury Secretary Timothy Geithner.

In general, governments do inherit the debt of their predecessors just as they inherit the assets of the nation. Governments have defaulted on debts since at least the 4th century B.C., when 10 of 13 Greek cities could not pay their bills; ironic, yes. And there is a long history of settlements, too. In the last 200 years, more than 70 governments, from Austria to Vietnam, have defaulted and eventually settled for far lesser amounts, allowing them to borrow once more, according to an MIT study, which adds: “The great majority of defaults in the 19th and 20th centuries eventually led to some form of settlement between creditors and the debtor country.”

Jan 04, 2013 7:44am EST  --  Report as abuse
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