By Erik Wasson - 08/15/11 08:53 PM EDT
Vice President Biden will tout the debt ceiling deal during a trip to China and Japan, two holders of huge amounts of U.S. debt.
Biden will travel to top lender China on Wednesday and to Japan, the second-biggest holder of U.S. bonds, on Aug. 22.
The debt-ceiling deal signed by President Obama could cut up to $2.5 trillion from budget deficits over the next decade, but it was a smaller package than the grand bargain Obama flirted with striking.
Standard & Poor's downgraded the nation's AAA rating to AA+ a few days after Obama signed the legislation. S&P had called for a $4 trillion package, and said it was left uncertain that U.S. politicians could agree to a larger deficit-reduction package.
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But Brainard defended the bill, calling the Budget Control Act is a “major step” toward tackling the country’s “major fiscal and economic challenges.” She noted that “there continues to be extremely strong investor demand for U.S. Treasury securities.”
Stocks plummeted in the wake of the S&P announcement, but investors have so far flocked to U.S. bonds rather than abandoning them. Decreased demand for bonds by creditors such as China could cause a spike in interest rates that would both grow the debt and slow down the U.S. economy.
Biden will also push China to allow its currency to rise against the U.S. dollar. Democrats in Congress are clamoring for legislation to punish China for keeping its currency undervalued, something it does to make its exports cheaper compared to U.S. products.
“We know that it remains substantially undervalued. And the vice president will want to put a special emphasis on that,” Brainard said.
White House officials said that Biden does not intend to raise the issue of pending F-16 fighter jet sales to Taiwan during his visit. China is expected to object to this arms deal.