Obama Says Investors Can Be Fully Confident in U.S.

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Obama Says Investors Can Be Fully Confident in U.S.
http://www.bloomberg.com/apps/news?pid=20601103&sid=a85UhPNGBFrg&refer

By Kim Chipman and Alan Bjerga Last Updated: March 14, 2009 19:27 EDT



March 14 (Bloomberg) -- President Barack Obama said investors can have “absolute confidence” in Treasury bills as he sought to assuage China’s concern about the safety of its holdings of U.S. debt.

“Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the U.S.,” Obama said today at a press conference in Washington after meeting Brazilian President Luiz Inacio Lula da Silva.

Chinese Premier Wen Jiabao, whose country is the single largest overseas owner of U.S. government debt, said two days ago that he was “worried” about holdings of Treasuries and wanted assurances that the investment is safe. The U.S. is counting on overseas purchases of its debt to finance Obama’s $787 billion package intended to help pull the world’s biggest economy out of a recession.

Obama noted today that investment flows into the U.S. are rising. Total net purchases of long-term equities, notes and bonds increased to $34.8 billion in December, compared with net selling of $25.6 billion in November, according to a Treasury Department report last month.

“I think it’s a recognition that the stability not only of our economic system but also our political system is extraordinary,” Obama said. He said the private sector has helped make the country the world’s “most dynamic economy.”

Lula, who presides over the world’s 10th-biggest economy, said he’s concerned that investor “flight” toward the relative safety of U.S. securities will mean there’s less money to invest in emerging economies.

G-20 Summit

“This is a problem we will have to discuss at the G-20 meeting,” he said, referring to a meeting of leaders of the Group of 20 nations scheduled for April 2 in London. The Group of 20 comprises the world’s largest developing and emerging nations.

G-20 finance ministers meeting today in London in preparation for the summit pledged a “sustained” effort to end the global recession and cleanse banks of toxic assets.

“Our key priority now is to address the value of assets held on banks’ balance sheets, which are constraining banks’ lending” and damaging economies, the G-20 statement said. Banks are still hoarding cash after being stung by more than $1.2 trillion of writedowns and losses.

Obama’s comments on the safety of Treasury debt follows a concerted effort by administration officials yesterday to ease Chinese concerns.

“There’s no safer investment in the world than in the United States,” White House Press Secretary Robert Gibbs said at a briefing in Washington.

China’s Treasury Holdings

Investors abroad own almost half of all U.S. debt outstanding. China held $696 billion in U.S. Treasury debt as of Dec. 31, more than Japan’s holdings of $578 billion. Foreign holdings of U.S. Treasury debt at the end of last year totaled $3.1 trillion.

During the first five months of fiscal 2009, which began Oct. 1, the U.S. budget deficit swelled to a record $764.5 billion for the period, compared with a $265 billion shortfall during the same period a year earlier. The shortfall this year already has exceeded the record $459 billion gap for all of 2008.

Obama and Lula both described today’s meeting in the Oval Office as friendly and productive.

The leaders said they talked about cooperating in areas such as energy, specifically biofuels, and discussed how they might raise the standard of living throughout Latin America and expand trade.

Americas Summit

U.S. and Brazilian government officials will hold a series of meetings to prepare for the G-20 meeting and to coordinate ahead of next month’s Summit of the Americas in Trinidad and Tobago, Obama said.

The two leaders seek a “proactive strategy that uses the strength of the U.S. and Brazilian relationship to strengthen ties throughout the hemisphere,” said Obama, adding that he plans to visit Brazil soon.

Lula said crafting a joint proposal for the G-20 meeting is “extremely important” and that other world leaders “should be convinced” that the economic crisis must be addressed more quickly so the unemployed people of today don’t become the “social problem of tomorrow.”

Ethanol

On the issue of ethanol, Obama acknowledged that the biofuel has been “a source of tension between the two countries.” He also said he admires Brazil’s “extraordinary leadership” in developing and using biofuels as an alternative energy source.

Brazil is the world’s biggest producer of sugar cane-based ethanol and essentially the only exporter of ethanol overall. It’s been longstanding Brazilian policy to try to get the U.S. to lower duties on sugar ethanol. The tariffs obstruct trade between the two nations while U.S. biofuels groups and some lawmakers defend the tax to boost their own industry, according to Brazilian officials.

Lula said today that the duties remain a concern, though he noted that the issue has been brought up with prior administrations and that it’s not realistic to think the new Democratic president will address this right away.
“I never expect an immediate answer,” Lula said. “As time goes by, Brazil is proving that biofuel is an extraordinary alternative and slowly the countries will be convinced.”

Obama agreed that the issue is “not going to change overnight.”

Trade Negotiations

“But I do think that as we continue to build exchanges of ideas, commerce and trade around the issue of biodiesel, that over time this source of tension can get resolved,” Obama said.

On trade in general, Obama said the two countries are determined to work together to revive stalled trade negotiations worldwide.

“It may be difficult for us to finalize a whole host of trade deals in the midst of an economic crisis like this one,” Obama said.

“Although we have committed to sitting down with our Brazilian counterparts to find ways that we can start closing the gap on the Doha Round and other potential trade agreements,” the U.S. president added, referring to the trade talks known as the Doha Round.

The leaders didn’t mention whether they discussed the 47- year-old U.S. embargo of Cuba. Lula and other Latin American leaders are urging the Obama administration to end the embargo on communist Cuba.

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