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‘If anybody tells you that Americans work for China now…’

The headline comes from a Christian Science Monitor piece which in turn comes from the Congressonal Budget Office of who owns the U.S. government bonds that make up our national debt. The full quote, which seemed too long for a headline, goes:

“If anybody tells you that Americans work for China now, since they hold all our T-notes and can yank our fiscal chain, tell them that’s an exaggeration.”

CBO reports that about 53 of the total U.S. debt is owed to American citizens and other U.S.-based entities ranging from the Fed, to mutual funds. Of the 47 percent that’s owned by foreign interests (including foreign governments, corporations and individual investors) China is the biggest, but owns only 9.8 percent of US debt, followed by Japan (9.6 percent), and Britain (5.1).

I’m not wise enough to know how much mischief for the U.S. economy China could make, if it wanted to, with this much leverage. But the numbers certainly undermine a certain line of demagoguery about China’s control over us through the debt.

Listen, I’m still a debt and deficit hawk. We need a balanced long-term program of tax increases and spending restraint, hopefully assisted by economic growth, to get the U.S. national debt down to a more sustainable level, as a percentage of GDP. To continue to pay only lip service to the debt/deficit issue, which is what both parties currently do, leaves the economy vulnerable to crisis, and unfortunately no one knows the level of debt or the particular shock that sets off the crisis. But I’m glad to learn that the scare-talk  about Chinese control over our debt is hype.

Comments (3)

  1. Submitted by Greg Kapphahn on 02/07/2011 - 10:49 am.

    Thanks, Eric, for the reality check on this issue.

    I was pleasantly surprised by these figures, but am left with a couple of lingering questions:

    1) Who is it that’s currently buying T-Bills and what mischief could be worked if they simply stopped doing so?

    2) What effect would it have on the value of the dollar if China decided to dump their T-bills on the world market (i.e. what manipulative power do the Chinese have over US government policy in China’s neighborhood)?

  2. Submitted by Paul Brandon on 02/07/2011 - 11:25 am.

    Greg–
    I think that the current feeling is that the Chinese would harm themselves more than us if they dumped our paper. After all, we’re their biggest customer and they don’t want to reduce our demand for their products.

  3. Submitted by Jim Camery on 02/07/2011 - 12:46 pm.

    I don’t see it as a big deal, really. The only way for Japan or China (or me) to sell their (my) t-bills is to find someone who will buy them and to agree upon a price. Flooding the market will only drive down the value.

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