Complicating the international tension, the premier of China, which holds more than $727 billion in U.S. Treasury securities and is by far the biggest U.S. creditor, expressed concern Friday about the safety of his government's investments.
Cracks in the global fight against the economic downturn were on display as finance ministers of the Group of 20 nations gathered in southern England, many of them voicing alarm that the U.S. is trying to spend its way out of the recession.
The G-20 represents more than 80 percent of the global economy, and the meeting beginning Saturday in Horsham, 30 miles south of London, is supposed to lay groundwork for a full summit of heads of state in April. But fears grew Friday that fissures over how to solve the crisis would prevent even that.
"The danger now is doing too little, too late," World Bank President Robert Zoellick warned after arriving in Britain for the meeting. "Incremental changes will prolong and increase risks."
Chinese Premier Wen Jiabao called on the United States to remain "a credible nation" and not weaken the U.S. dollar with endless government spending on bailouts and stimulus packages.
"Of course, we are concerned about the safety of our assets. To be honest, I'm a little bit worried," Wen said at a news conference Friday after the closing of China's annual legislative session.
Chinese investment in U.S. Treasuries for years has helped finance U.S. budget deficits, keep interest rates low and buoy the dollar. It is all the more important as the U.S. takes on a deficit in excess of $1 trillion to fight its recession.
China appears to fear that overspending on stimulus by the United States could ignite inflation and send interest rates climbing.
Wen did not say specifically what the United States should do. But analysts said his remarks seemed intended to signal that the U.S. should place importance on China's interests as it plots its way out of the downturn.
"It's a reminder: 'We're a big creditor of yours,"' said Morris Goldstein, a senior fellow at the Peterson Institute for International Economics. "'We want to make sure our interests are respected."'
But at the same time -- and underscoring the interconnected nature of the global economy -- China needs the U.S. economy to recover so that Americans can resume their purchases of Chinese-made goods.
China's exports plunged more than 25 percent in February compared with a year earlier, exacerbating fears among China's leadership about rising job losses and possible unrest among its people.
The Obama administration, meanwhile, spoke confidently Friday of an economic turnaround. The head of the National Economic Council, Lawrence Summers, said consumer spending, the lifeblood of the American economy, appeared to have stabilized.
In the United States, troubled banks showed signs this week that they will run at a profit for the first quarter, and the stock market enjoyed its best week since Thanksgiving, including a four-day string of gains in benchmark averages.
President Barack Obama cautioned that "we've got to get through this difficult period," while Summers cautioned against an a climate of fear that could exacerbate the economic decline.
"It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind when he famously observed that the only thing we had to fear was fear itself," Summers said.
Treasury Secretary Timothy Geithner said earlier this week that the U.S. economy "needs a revival of global growth to complement the stimulus we are injecting at home," referring to the recently passed $787 billion package of spending and tax cuts.
But European nations, particularly Germany, are wary about pursuing such a course. Many European governments say their banks may need large bailouts. And they say the United States doesn't bring much credibility to the talks as it struggles to address the worst economic crisis in decades.
"The issue is not spending even more but to put in place a regulatory system to prevent the economic catastrophe that the world is experiencing from being repeated," German Chancellor Angela Merkel said this week.
As world leaders quarrel over the answer, the decline is getting worse. The World Bank has forecast trade to fall to its lowest point in 80 years this year.
And new figures Friday showed the U.S. trade deficit plunged in January to the lowest level in six years as the deepening recession cut demand for imported goods at an even faster rate than for exports.
Zoellick said he was afraid that fiscal stimulus programs, unaccompanied by a plan to cleanse banks of the troubled assets weighing down their balance sheets, would only add to the economic headache.
"Turnaround can't happen unless you clean up the bad assets and recapitalize the banks," he said. "If you don't take on the banking issue, the stimulus is just like a sugar high. It pushes some energy through the system, but then you get the letdown unless you reopen the credit markets."
(Copyright 2009 by The Associated Press. All Rights Reserved.)
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