China has no choice but to continue to buy U.S. Treasury debt or face a decline in their exports and a slowing domestic economy, says economist Nouriel Roubini. Nevertheless, the United States will eventually be forced to raise taxes across the board on both the rich and the middle class, Roubini told CBNC.
“Until this happens, the Chinese will have to continue buying U.S. bonds as there is no alternative for them,” Roubini said.
“If they stop, their currency will appreciate sharply, something that will affect significantly their exports. Whether they like it or not, for now, the Chinese will have to finance the United States.”
Roubini called the partial spending freeze proposed by President Barack Obama "spare change" compared to the deficit.
Obama’s proposed five-year freeze would lower the deficit by about $400 billion over 10 years. The Congressional Budget Office projects a deficit of $1.48 trillion in 2011.
GOP leaders, such as newly elected Kentucky Republican Sen. Rand Paul, have proposed much deeper cuts, amounting to $2.5 trillion over the coming decade and $500 billion in just one year.
Sen. Jeff Sessions, R-Ala., told Fox News that Obama's plan amounted to "deficit preservation."
"We need leadership and vision from the president," he said in a statement. "But tonight we saw timidity and denial."
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