China's vessels patrol Diaoyu Islands after Japan illegally purchases and nationalizes them

Move displays jurisdiction as tensions keep growing over sea dispute

China Marine Surveillance 15, one of six patrol ships sent by China, arrives at the waters off Diaoyu Island on Friday. Zhang Jiansong / Xinhua

Six Chinese surveillance ships patrolled the waters around China's Diaoyu Islands Friday morning, Xinhua News Agency reported, amid few signs that tensions over the territorial dispute were subsiding.

Television footage showed a Chinese Marine Surveillance officer aboard one of the ships radioing Japanese vessels to demand they leave.

"The actions of your ships violate China's sovereignty and rights," the officer was shown saying. "Any unilateral act from your side regarding the Diaoyu Islands and its affiliated islands is illegal and invalid. Please stop any infringing acts. Otherwise, your side will bear the consequences caused by your actions."

The patrols are aimed to demonstrate China's jurisdiction over the Diaoyu Islands and their affiliated waters and ensure the country's maritime interests, a government statement said. The government has vowed that more action will be taken if the Japanese government doesn't withdraw its deal to "purchase" and "nationalize" the islands.

It was the first surveillance mission by Chinese vessels in waters around the islands in the East China Sea since Beijing announced on Monday the base points and baselines of the territorial waters of the Diaoyu Islands and their affiliated islets, as well as the names and coordinates of the 17 base points.

"Announcing base points and baselines is the basis of establishing waters under national jurisdiction, on the basis of which the sea territory, exclusive economic zone and continental shelf can be established according to the provisions of the UN Convention on the Law of the Sea," Assistant Foreign Minister Le Yucheng said on Friday at a symposium.

Japanese Prime Minister Yoshihiko Noda's cabinet approved the plan to "nationalize" the Diaoyu Islands on Monday, and the next day the Japanese government signed a deal to buy three of the Diaoyu Islands from "private owners".

There is a "sinister tendency inside Japan that is taking Japan and China-Japan relations down an extremely dangerous road", Le said.

"China will in no way recognize Japan's illegal occupation of and so-called actual control over the Diaoyu Islands," Le said.

The Japanese government's "nationalization" of the Diaoyu Islands has sparked protests and countermeasures in China. The diplomatic standoff between Beijing and Tokyo has led to a series of canceled visits and exchanges.

A trip to Beijing later this month by a bipartisan group of incumbent and former Diet members was called off at the request of the Chinese host, according to Kyodo News.

China Comfort Travel Group stopped accepting reservations to Japan at its 220 affiliated travel agencies across China, according to Xinhua.

The company said the group will not resume Japan-bound tours unless the territorial issue is resolved.

China has a major holiday period from late September to the first week of October and if other agencies follow suit, Japan-bound tourism during the period could plummet.

The Japanese government's moves over the Diaoyu Islands have scuttled bilateral cultural events, further dimming prospects for any fanfare to fete the 40th anniversary of ties.

Chinese pop singer Sun Nan canceled a concert scheduled for Tokyo later this month, and Japanese singer-songwriter Shinji Tanimura will postpone a Sept 25 concert in Beijing.

Both concerts had been organized to mark the 40th anniversary of the normalization of China-Japan diplomatic ties.

Panetta visit

US Defense Secretary Leon Panetta departs this weekend on an Asian tour with stops in Japan, China and New Zealand. He has decided to stop in Japan prior to his China visit, given the escalating tensions between the two countries, according to Kyodo News.

Panetta is scheduled to meet Japanese Defense Minister Satoshi Morimoto and Foreign Minister Koichiro Gemba on Monday.

"The US government should stay neutral," said Gao Hong, deputy director of the Institute of Japanese Studies at the Chinese Academy of Social Sciences.

The US was directly involved in making the Diaoyu Islands a dispute.

In 1951, the Treaty of Peace with Japan was signed between Japan, the US and other countries, placing the Ryukyu Islands (known as Okinawa today) under the administration of the US. In 1953 the Civil Administration of the Ryukyu Islands under control of the US arbitrarily expanded its jurisdiction to include the Diaoyu Islands and its affiliated islets, which are Chinese territories. In 1971, Japan and the US signed the Okinawa Reversion Agreement, which included the Diaoyu Islands and other islets to be reverted to Japan.

China has firmly opposed and never recognized the backroom deals between Japan and the US.

By Cai Hong and Zhang Yunbi ( China Daily)

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Japan, the deputy sheriff in Asia?
China defense ministry acts as Japan buys its Diaoyu Islands
Purchase' of Diaoyu Island reflects weakened Japan 2012-09-14 19:44
Japan is trying to cover up Diaoyu's theft: official 2012-09-14 19:08
Chinese files Diaoyu Islands baseline announcement 2012-09-14 11:24
Diaoyu Islands 'Purchase' reflects weakened Japan: experts 2012-09-14 23:12
Surveillance ships start patrol around Diaoyu Islands 2012-09-14 09:12

'No’ to property price speculation

Excessive Asian property price appreciation may be over for now

PEOPLE generally like to invest in properties. It is easy to understand you buy a house. It is a simple, tangible investment. It is long term and financing is usually easy. Most people tend to have positive experience after buying their first home, which normally would appreciate after a decade or two.

Simple things can morph into complex series of events. Buying houses may turn to speculation, massive speculations become a boom and bust “housing bubble”; banks may collapse from huge bad mortgages, a financial crisis and then a government bailout ensues, an economic recession soon follows. These events sound a little too familiar.

Low interest rates, massive liquidity and investors shying away from volatile stock markets, are some of the many reasons cited for Asia's potential property bubbles today. From 2009 or so, private residential properties have seen large average price jumps in China (Beijing +100%), Hong Kong (+53%), Singapore (+53%), Malaysia (+21%) and Indonesia (Jakarta +14%).

Asian policy makers have taken many pre-emptive actions to control this property “bubble”, usually by regulating excessive speculation and guiding mortgage lending by banks. In Hong Kong, policy makers try to discourage speculators by raising special stamp duty for short term resale of residential property (5% to 15%, depending on holding period); in Singapore, measures include a hefty extra 10% stamp duty on purchase price for non-residents. In Indonesia, there's a maximum 70% property loan limit.

Recent data suggest such curbs did not slow the Hong Kong or Singapore property markets for long. Transactions or prices picked up again recently. We believe however, if Asian property prices rise rapidly again, tougher curbs may be in the cards. The slew of increasingly tough measures in China the last 18 months is seen as an example. An avalanche of curbs eventually made China home prices dip for eight straight months up to May 2012.

Historically, financial crisis in many countries (Japan 1991, US 2008 and Spain today) are caused by property price bubbles bursting hurting consumers, banks and businesses. Therefore, it makes a lot of sense to have responsible lending.

Asian policy makers, having learned bitter lessons from the 1997/98 financial crisis, sees pre-emptive measures to control any potential property “bubble” as crucial to avoid banking problems or crises.

Governments in Asia on the one hand want to curb excessive price speculation, while at the same time, know that home ownership is a very important (and personal) issue notwithstanding it is also a big contributor to domestic economic growth.

What Asian policy makers aim to do is best captured in a Chinese phrase, which literally means “in peace time, think about danger”. The best time to prepare for rainy days is when the sun is shining it's a lot harder to do so in a storm.

The biggest challenge for policy makers is to develop a sustainable property sector and promote home ownership (especially first time house buyers) without boom and bust. That includes the balancing act of curbing property speculation without inadvertently pulling the brakes on the economy.

Some Malaysian non-listed property developers I met recently have expressed deep concerns that sales of their high-end, new condominiums are lagging, because buyers find it difficult to get financing.

Bank Negara's curbs on lending for third property mortgage (maximum 70% financing) and stricter banks credit standards appears to be working for now.

The intent of Bank Negara, we believe, is to nip excessive property price speculation in the bud. Current property curbs ensure at least prices don't run up too fast and banks may allocate more funds to first time house buyers rather than investors or speculators.

Interestingly, property developers who don't complain about curbs are often the established ones who prefer sustainable growth, rather than a boom and bust property market. I believe many property companies have learnt not to borrow too much.

Tellingly, the top five Malaysian listed property developers have reduced average net gearing from 70% in 2000 to 18% in 2011, (Indonesian and Thai property developers reduced from 612% to 9% and 255% to 84% respectively). Asean property companies today are undoubtedly less leveraged with healthier cash reserves.

That's one reason why most property developers in Malaysia, Indonesia and Thailand for example, are not rushing to unload properties at massive discounts, even as property curbs bite into sales. They know current measures are temporary and consumer demand is likely robust for quite some time.

Asian consumers are financially better off today. Healthy employment and wage increases across Asia means consumer demand for housing will likely stay buoyant and house prices, like in normal times, will gradually rise over time.

However, the intriguing impact on Asian properties today given the mind set and propensity of policy makers to pre-empt any potential property bubble I believe periods of excessive property price appreciation in many Asian property markets may already be over for now.

I believe policy maker's curbs on excessive price speculation is a right policy. Even if there's short-term pain, it will likely make Asian economic growth sustainable for the longer term in these difficult times.

Singular Vision
By TEOH KOK LIN

Teoh Kok Lin is the founder and chief investment officer of Singular Asset Management Sdn Bhd.

China Manned Space Mission successful

The Long March-2F carrier rocket carrying China's manned Shenzhou-9 spacecraft blasts off from the launch pad at the Jiuquan Satellite Launch Center in Jiuquan, northwest China's Gansu Province, June 16, 2012. (Xinhua/Li Gang) JIUQUAN, June 16 (Xinhua) -- Commander-in-chief of China's manned space program Chang Wanquan announced Saturday that Shenzhou-9 spacecraft had accurately entered its orbit, calling the spaceship launch a success. Space.com: You can watch China's Shenzhou 9 launch live online via the state-run CCTV news channel here: http://english.cntv.cn/special/shenzhou9/index.shtml FULL VIDEO: Shenzhou-9 blasts off CCTV News - CNTV English.

We have lift off! China sends woman astronaut into orbit in most ambitious space mission yet

• New hero for a billion people as China's first female astronaut successfully enters space
• The 33-year-old is with two male astronauts on a mission to the 'Heavenly Palace' space station
• The astronauts are now orbiting at 213 miles above Earth and expected to reach the space station on Monday 
• Analysts say China's exclusion from the ISS, largely on objections from the United States, was one of the key spurs for it to pursue an independent program 20 years ago.

By Lawrence Conway

Read more: http://www.dailymail.co.uk/news/article-2160213/We-lift-China-sends-woman-astronaut-orbit-ambitious-space-mission-yet.html#ixzz1y1meGnsk

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China sets new record submersible deepest seas dive

Chinese sub dives over 6,000 meters

ABOARD XIANGYANGHONG 09 - China's manned deep-sea submersible Jiaolong and three divers inside are rising from over 6,000 meters below the sea in the Mariana Trench after setting the country's dive record on Friday.

China's manned deep-sea submersible, Jiaolong, is unmoored from its mother ship before making its first dive in the Mariana Trench, as part of a bid to go to depths of up to 7,000 meters, June 15, 2012. [Photo/Xinhua]

The dive, which began at 9 am local time Friday (2300 GMT Thursday), is the first of a series of six scheduled ones.

The dive went smoothly and cost about 3 hours for the Jiaolong to reach the depth of 6,000 meters at 12 pm local time (0200GMT), which far surpassed the 5,188-meter record it made last July.

The three divers Ye Cong, Cui Weicheng and Yangbo inside the vessel wished China's Shenzhou-9 spacecraft launch a success from 6,055 meters below the sea.

The Shenzhou-9 manned spacecraft Thursday completed its final full-system drill before its planned launch in mid-June.

The Jiaolong threw ballast iron and began to rise at 12:44 pm local time (0244 GMT).

So far, the three drivers and the Jiaolong itself have been OK.

There was something wrong with the submersible's No 1 communication system, but the No 2 set is working soundly to guarantee the connection between the vessel and Xiangyanghong 09, its mother ship.

The rise is expected to last three hours and the on-scene dive headquarter will timely release the diving information.

The Jiaolong, depending on local weather and sea conditions, will try another five dives, deeper and deeper, in the coming days. The fifth and sixth are scheduled to challenge the depth of 7,000 meters.

The six dives, each of which may last eight to 12 hours, will test various functions and performances of the manned submersible at great depths.

Experts say, for safety, sea dives can only be conducted in daylight under no-more-than-four-class wind and no-more-than-three-class wave.

The Xiangyanghong 09 ship reached the designated dive zone in Mariana Trench on Monday morning.

China's manned deep-sea submersible, Jiaolong, is hung up before making its first dive in the Mariana Trench, as part of a bid to go to depths of up to 7,000 meters, June 15, 2012. [Photo/Xinhua]

Submersible sets new China dive record 

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File photo of the Chinese submersible "Jiaolong". The manned Chinese submersible on Friday set a new record for the country's deepest ever sea dive at 6,000 metres (19,685 feet), state media said.

A manned Chinese submersible set a new record for the country's deepest sea dive Friday, over 6,000 metres, showing Beijing's technological ambitions as it also readies for its first manned space docking.

The "Jiaolong" craft dived over 19,685 feet into the Mariana Trench in the western Pacific Ocean, the first in a series of six dives which will plumb depths of 7,000 metres, the official Xinhua news agency said.

The deep-sea dive push comes as China prepares to launch a spacecraft on Saturday to conduct its first manned space docking, as part of efforts to establish a permanent space station by 2020.

The submersible, which carried three men, reached around 6,500 metres with only a technical glitch in communications, state media said.

"In our first battle, we have already reached 6,500 metres. All of our tasks have been completed," chief commander Liu Feng told state television aboard the ship carrying the submersible.

He said a piece of communications equipment on the surface of the water failed, but the team switched to a back-up system and restored communications. He did not say whether contact was completely lost with the Jiaolong.

The same vessel -- named after a dragon from Chinese mythology -- reached 5,188 metres in a Pacific dive last July, the nation's previous record.

Friday's dive sparked outpourings of nationalism on the Internet and comparisons to the upcoming space launch.

"Three pilots will take the Jiaolong to attempt the 7,000-metre dive, while three astronauts will take the Shenzhou-9 to connect with the Heavenly Palace," a Shanghai based blogger wrote on his microblog.

"Up in the sky we can pluck the moon, down in the oceans we can catch the turtles," said the posting on Sina's microblog service, quoting a saying attributed to late Chinese leader Mao Zedong.

Experts say China intends to use the submersible for scientific research, such as collecting samples of undersea life and studying geological structures, as well as future development of mineral resources.

But one Chinese expert on Friday described the latest dives as an "experiment" for China and said future use of submersibles for scientific research faced obstacles, such as with stability and durability of the craft.

"Even after it reaches the 7,000-metre depth, it still remains a question whether it can achieve scientific purposes," Zhou Huaiyang, professor of the School of Ocean and Earth Sciences at Shanghai's Tongji University, told AFP.

Scientists say the oceans' floors contain rich deposits of potentially valuable minerals, but the extreme depths pose technical difficulties in harvesting them on a large scale.

 AFP
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 China achieves double record-breaker: Sky-high and abyss-deep sea!
 

Chinese Moon Probe Reaches New Deep Space Destination

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SPACE.com Staff

An artist's interpretation of the China's Chang'e 1 lunar orbiter, which launched in October 2007 and ended its mission by crashing into the moon on March 1, 2009.CREDIT: CNSA.

Several months after departing from the moon, a Chinese spacecraft has arrived at a new destination about 930,000 miles (1.5 million kilometers) from Earth, according to news reports in China.

The Chang'e 2 moon probe arrived at Lagrange Point 2 (L2) — a place where the gravity of Earth and the sun roughly balance out — on Aug. 25, the Xinhua news service reported Tuesday (Aug. 30). Chang'e 2 had left lunar orbit in early June to head for deeper space.

China is now the world's third nation or agency to put a probe in L2, one of five spots in near-Earth space that serve as a sort of parking lot for spacecraft to hover without being pulled toward any planetary body. NASA and the European Space Agency have also accomplished the feat.


Officials from China's State Administration of Science, Technology and Industry for National Defence (SASTIND) said that Chang'e 2 will carry out exploration activities around L2 over the coming year, Xinhua reported. SASTIND also plans to launch two "measure and control stations" into outer space by the end of 2012, and Chang'e 2 will be used to test the stations' functionality at that time.

Chang'e 2 launched on Oct. 1, 2010, and arrived in lunar orbit five days later. The probe is the second step in China's three-phase moon exploration program, which includes a series of unmanned missions to explore the lunar surface. [Photos: Our Changing Moon]

This photo, taken by China's Chang'e 2 lunar probe in October 2010, shows a crater in the moon's Bay of Rainbows. The image is one of the first released to the public by China's space agency.
CREDIT: China Lunar Exploration Program [Full Story] View full size image

During its time orbiting the moon, Chang'e 2 took a lot of high-resolution photos to help plan out future missions, which will actually drop hardware onto Earth's nearest neighbor. China is aiming to launch a moon rover around 2012, and another rover will land on the moon and return to Earth with lunar samples around 2017, according to Xinhua.

Chang'e 2 finished up its duties around the moon in April but had enough fuel left over that officials decided to send the probe off into deeper space.

The spacecraft's predecessor, Chang'e 1, launched in October 2007 and conducted a 16-month moon observation mission, after which it crash-landed on the lunar surface by design in March 2009.The Chang'e probes are named after the nation's mythical moon goddess.

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US downgrade spells more chaos; QE3 in the making; Time for US to stop blames, take responsibility!

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Downgrade spells more chaos

Global Trends By MARTIN KHOR

The US credit downgrade – coming after a weak solution to its debt ceiling crisis and signs of a new recession – is signalling greater turmoil ahead in the global economy.

LAST week was a tumultuous time for the global economy as stock markets plummeted on a series of bad news in the United States and Europe. But this may only be the start.

This week is likely to usher in even more turmoil as the prospects for recovery have suddenly turned negative.

After several other dramatic events, last week ended with the US’ credit rating losing its AAA status to AA+.

It was only one notch down, this downgrade was by only one (Standard and Poor’s) out of three rating agencies, and it had been half expected.

Nevertheless, it marks the end of an era. For the first time since 1917, the US does not enjoy an AAA rating.

It has long been assumed that the US dollar and its Treasury bills are the safest of havens.

There may be some practical effects of the downgrade as some funds which prefer or are allowed to only invest in AAA investments may have to find alternatives.

The US dollar is also expected to depreciate further, thus raising fresh questions about the role of the dollar in global trade and as the world’s reserve currency.

Manufacturers and traders are asking whether they should trade their goods in currencies other than the US dollar to avoid making losses.

This was shown in yesterday’s Sunday Star report on the reactions of Malaysian businessmen to the news of the downgrade.

The Federation of Malaysian Manufacturers’ president Tan Sri Mustafa Mansur urged Malaysians to consider trading in Chinese renminbi (as China is poised to be the world’s largest economy and a lot of Malaysia’s trade is with China) and in other currencies to avoid losses in export earnings from the continuing use of the US dollar.



Besides the use of the dollar as the main medium of exchange (the currency for global trade), it is also, by far, the world’s most important reserve currency, thus making it the global store of value.

Since almost all countries hold a major portion of their foreign reserves in US dollar assets (especially US Treasury bills), there has been increasing fears worldwide over the safety and value of their US investments.

First, there was the scare of possible default by the US Government in debt servicing, because of the White House-Democrats-Republican wrangling on the government’s debt ceiling.



On Aug 1, just a day before the deadline, a deal was struck in which the debt ceiling would be raised by US$2.1 trillion (RM6.32 trillion), provided the government slashes the same amount in its budget deficit over 10 years, with the bulk of how to do so to be decided by a bipartisan committee later.

This gives temporary respite, and the world will likely witness a repeat of the messy Washington budget conflict when the committee starts work.

As a caustic commentary in Xinhua news agency put it, the higher debt ceiling “failed to defuse Washington’s debt bomb for good, only delaying an immediate detonation by making the fuse an inch longer”.

Second, the S&P’s credit downgrade has articulated the fears of the investment and policy-making circles.

The confused and confusing atmosphere surrounding Washing­ton politics has seriously eroded confidence in the ability of the US to handle its budget, debt, fiscal, financial and economic policy issues.

Only political analysts who specialise in US politics can fully explain and anticipate the intricacies and implications of the views and tendencies of the various branches of the Republican Party (especially its Tea Party component and its effects on the Party’s congressional positions), the Democratic Party and the Administration.

But even non-specialists comprehend that there is a serious governance problem in the US which is affecting the rest of the world.

Its political system is experiencing a gridlock which will affect the US dollar, the US economy and the world economy’s prospects for what seems to be a long time to come.

Third, the US economy shows increasing signs of stalling leading to a new recession.

Last week’s indicators for consumer spending, manufacturing and services output were negative, and some prominent economists gave a 50:50 chance of a double dip recession.

Recession is made more likely by the inability of the Obama administration to take effective recession-busting measures.

Congress will block any new significant fiscal stimulus (as the debt ceiling crisis and solution show), while a new round of printing and injecting money through quantitative easing, which is being considered, may only have limited positive effects.

All these point to a further weakening of the US economy and the US currency, at least in the short term.
These three developments, all in one week, have galvanised those in business, trade, finance and policy making to re-think the role of the dollar and the US economy in the global economy.

In the short run, it is difficult to find alternatives to the dollar as a unit of exchange or as a store of value, mainly because the euro is in a crisis of its own, the Japanese economy faces its own difficulties and the Chinese currency is not convertible enough.

But many agree that in the long run, a solution or solutions must be found. Otherwise, the global trading and monetary systems could be in a disarray.

There is nothing like a crisis or an emergency to collapse a long run into a short run.

If the US and European crises continue to unfold without respite, the world is in for financial and economic turmoil similar to or even worse than the recent 2008-2009 great recession.

Solutions will therefore have to be urgently sought.

Smaller QE3 may be necessary to prevent US double dip recession

By YAP LENG KUEN  lengkuen@thestar.com.my

PETALING JAYA: With the US economy possibly sliding into a double dip recession soon, there are expectations of a third round of quantitative easing (QE3), which may involve smaller amounts.

“It is not a popular decision but may be the only reaction from the US Fed to keep the economy going,'' said Pong Teng Siew, head of research at Jupiter Securities.

“The Fed has limited options especially with no more government spending to stimulate the economy. Fiscal policy that involves government spending is out in the wake of arguments related to the US debt ceiling where the only acceptable solution to the Republicans is to cut spending, and not raise revenue.

“QE3 may involve smaller purchases of Treasury instruments at the longer end of the yield curve. This may help to drive down the yield where the medium term rates may also move down in tandem. In this way, interest costs may also be reduced.

 

“This time, there are less resources available, hence probably smaller amounts under QE3. Also, the market itself may reject larger amounts,'' said Pong.

There may be a resultant boost to the stock markets on a smaller scale. However, the European debt problem especially in Italy represents a situation that is likened to an elephant in a room.''

“As long as there are upward pressures in the Italian government bond yields, there will be downward pressure on the stock markets in Europe,'' said Pong, adding that investors should stay light on selected plantation, oil and gas and consumer-related companies.

Bloomberg reported on Friday that the difference in yield, or spread, between Italy's 10-year bond and German bunds widened to 389 basis points on Thursday, after closing at 368 basis points the previous day.

 Lee: ‘This time round, headline and core inflation have been creeping up.’

It said Spain's 10-year spread also rose six basis points to 398, as European Central Bank debt purchases failed to reassure investors that officials in the region would solve the sovereign crisis.

QE refers to the Fed's decision to buy US Treasury bonds in an attempt to inject liquidity into the market.

The previous rounds of QE1 and QE2 had not produced a lasting impact on the US economy which is holding the weight of inflation and higher debt levels.

CIMB Investment Bank head of economics Lee Heng Guie said full-year growth estimate for the US economy had been revised from 2%-3% to 1.5%-2%, raising the odds of a double dip recession by 30%.

Moreover, the cut in the US credit rating by Standard & Poor's would have a double whammy impact on the lethargic economic recovery in the US, Lee added.

In a recent update, Lee noted that the US second quarter real gross domestic product growth came in at a tepid annualised rate of 1.3%, short of the 1.8% consensus forecast.

Consumer spending in the United States, hurt by higher gasoline prices and auto chain supply disruptions, rose by only 0.1% (2.1% in Q1), the slowest in two years.

“We expect the Fed to take more actions, such as buying of bonds, if the economy appears in danger of stalling,'' said Lee.

However, he does not think that inflation and inflation expectations are heading towards the point which would prompt the Fed to consider further large asset purchases.

Lee recalled that before the second phase of quantitative easing (QE2) was implemented, the trend of disinflation and deflationary risk formed a strong case for the Fed to pump in extra liquidity.

“This time round, headline and core inflation have been creeping up,'' he said. “With inflation and unemployment rising at the same time, the Fed will find it difficult to justify yet another cash injection.''
Should the Fed detect firmer signs that the US economy is faltering, it may:

• Adjust forward guidance to push back timing expectations on the first rate hike.

• Shift back market expectations on when it will shrink its balance sheet. (In April, Fed chairman Ben Bernanke had signalled that the Fed may reinvest the proceeds from its bond purchase when they mature).

•  Intervene in the credit market through direct loans or adjust interest rates payable on bank reserves to spur bank lending.

 Other economists expect slower growth in the United States but not necessarily recession.

A banker told StarBiz that banks in general were adopting a cautious stance in view of the world and eurozone economic conditions.

“The US leaders have mainly taken temporary measures but the real issues like debt are not addressed,'' he said. “The debt problem remains while their agreements have to be bipartisan.

“From their behaviour, there seems to be a lot of politicking in the US especially on the economy. As a world leader, that does not give a good picture to the whole world.

Their decision to cut US$2.4 trillion or more in spending in ten years will have an impact on the world economy. Hopefully, for Malaysia, the economic transformation projects and its own economic growth will provide the momentum forward.

“The business is there but banks have turned cautious on lending and are diversifying into services, fee-based income, niche areas and wealth management,'' said the banker.

 Commentary: It's time for U.S. to stop blames, take responsibility

(Xinhua)

The White House on Saturday challenged the ruling by Standard & Poor's to downgrade U.S. long- term credit rating form top rank of AAA to AA+, citing the agency' s decision relied on faulty math and in haste.

Disappointingly, instead of reflecting on themselves and sitting down to fix problems in a cooperated way, the Democrats and Republicans in Washington are questioning the creditability of the downgrade ruling and blaming each other for the ever-first shame of slipping out top credit rating club.

During the angry finger-pointing, the U.S. politicians seemed to have forgotten Wall Street's severest losses in almost three years last week, forgotten mounting concerns about double-dip recession, and forgotten the criticism over their irresponsibility showed during the debt arm-twisting from all over the world.

The world has seen enough useless bipartisan debate. The bond- holders are losing confidence. The investors have started to escape markets to stay in cash, showing their fears of uncertainty.

S&P managing director John Chambers said "The political gridlock in Washington leads us to conclude that policymakers don' t have the ability to put the public finances of the U.S. on a sustainable footing ".

The alarm has rung. It is time for the naughty boys in Washington to stop chicken games before they cause more damages. It is time for the policy-makers in Washington to settle down, to show some sense of responsibility and fix their fiscal problems.

The United States is not only the biggest debtor, who must pay its large amount of obligations, but also the printer of international reserve currency, which has the responsibility to assure the value of other countries' foreign reserve assets.

If the country's governors kept wrangling for their own interest, ignoring the voices from domestic and aboard, how can their people trust them and where will the confidence for a better economic scenario come from?

If the world's largest debtor kept eating May's grain in April and kept robbing Peter to pay Paul without fiscal discipline, eagerness to balance budget or effective efforts to boost sluggish economy, how can the creditors keep lending without doubts?

According to analysts, risk of dollar devaluation increased after this downgrade, not to speak of the possibility to see more cuts in the next two years with a negative credit rating outlook.

Whether admitted or not, the U.S. central bank tended to maintain a cheap dollar for the export's sake aftermath the financial crisis, which already squeezed world foreign reserves.

Currently, the U.S. is facing a high unemployment rate of 9.1 percent and almost stalled economic growth. But the Federal Reserve's "silver bullets" have run out after two round of quantitative easing. For fiscal stimulus, there is only little room considering the excessive debt and austerity agreement. For the desperate policymakers, to boost export seems to be the last way to kick the U.S. economy. From this point, the U.S. has every motive to maintain a weak dollar.

Before the U.S. makes any move, please remind it: don't forget your responsibility as the issuer of reserve currency to maintain the stable value of the dollar. Don't become blind to the great risks that a fluctuated exchange rate could pose to international financial markets and a weak greenback could pose to the world fragile economic recovery by lifting dollar-denominated commodities prices.

The history is a guide. What we should learn from the financial crisis is to be selfish could only hurt yourself and drag others into water.

It is time for the U.S. to tighten belts and solve structural problems, in order to resume reputation and restore world confidence. 

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