GROWING DEBT PUTS AMERICA AT RISK

While 13,000 lobbyists in Washington are busy throwing money at policymakers, and Congress discusses a trillion dollar health bill, our major creditors such as China, Japan and Russia are gleefully watching America dig itself even deeper into debt. In fact, are giving us the tools to do it by continuing to purchase U.S. Treasury securities.
In the past year, China has increased its purchase of Treasury bonds by approximately $30 billion, making it our largest creditor with a holding of more than $800 billion in bonds. As a consequence, Japan has been relegated to second place on our creditors’ list with approximately $635 billion of our debt and Russia has moved into 7th place behind the U.K. with a stake of $120 billion. Third place features oil exporting nations, including some of America’s staunchest critics, namely Venezuela and Iran. That oil exporters’ group now holds bonds valued at over $186 billion. As of January 2009, U.S. Treasury bonds worth $3 trillion were being held by more than 40 nations across the globe. Some estimates put the figure at $3.5 trillion and rising. Even Chile is holding over $15 billion in bonds and Colombia around $11 billion even though it receives massive aid from Washington.
Ultimately, China is the 800 pound gorilla in the room of creditors. In 2008, it moved ahead of Japan by buying up almost half of America’s securities’ debt, thereby placing itself in a unique position to influence our financial policy. During his presidential campaign, Barack Obama talked tough about reigning in China’s acquisition of U.S. bonds and forcing the Chinese to tighten their monetary policy. Since becoming the White House incumbent, his stance towards China has reflected none of that toughness or confrontational assertiveness. Instead, in June he sent Treasury Secretary Timothy Geithner to Beijing to reassure the Chinese government and public that the dollar was strong and America would always honor its debts. When Geithner conveyed those assurances to students and faculty at Beijing University he was met with derision and laughter. Still, nothing has deterred China from purchasing more of America’s debt. Some experts argue that China has no intention of dumping its Treasury bonds while the cash return it gets from the U.S. gives it financially fluidity and the ability to shape the global financial scene.
In light of that, it now seems ironic that in 2000 experts in Washington were predicting a rosy financial future for America, claiming we would have s surplus in the trillions of dollars within a decade. But, it only took five years to wipe out that optimism and to set the national debt on a path where it is now at $8 trillion. Sadly, in just over two decades America has been transformed from being the globe’s largest lender to being its biggest debtor. Nowadays, it relies on China, Japan and other nations to raise capital. In the past ten years, no one has stopped to ask how we thought we could pay for two wars, leave military spending unchecked and bail out Wall Street. Now, there is the prospect of massive spending on health care and other costly Obama administration projects. The money spent on wars alone has cost America’s national interests dear and has given its creditors too much leverage. In particular, it has provided some creditors with the ability to be able to threaten Washington that at any time they might dump their Treasury bonds on the global market. While a major creditor like China remains happy to buy U.S. bonds in order to amass dollars to fund its purchase of raw materials other creditors in the room tend to feel secure. But, if the Chinese were to cease buying bonds other creditors might panic and rush to cash in theirs. Such a move that would send the U.S. Treasury into a spiral.
This year, the dollar has weakened against the Yen and the Euro fueling concerns that if China were to dump 50% of its bonds on the market the result would be a big rise in U.S. interest rates. But, China is not going to risk overturning the apple cart because purchasing U.S. debt underlies a policy strategy related to internal growth plans and international outreach. The interest it gets on the return from its bonds gives it the cash to finance oil and gas deals. It also enables it to provide interest free loans to countries that hold huge energy reserves but lack the money to develop them. In the past year, it has made loans to Russian, Brazilian and Australian energy conglomerates. As Washington turns a blind eye to what China is doing with its vast reserves of cash, the Chinese are also quietly expanding their interests in Canada. For the past three decades, it has quietly invested heavily in Canada through the large Chinese community there. Recently, China was involved in heavy share purchases in Canada’s energy sector. The Chinese push into Canada was orchestrated from Hong Kong in the 1980’s when Hong Kong was a British protectorate. Until the British formally handed Hong Kong back to China in 1997, there was a massive influx of Chinese into Canadian cities, particularly Toronto. The influx happened with the help of corrupt immigration officials who were secretly recruited and financed by the Chinese People’s Liberation Army. In fact, the PLA had a special unit that ran a gravy train of officials in Hong Kong handing out visas to selected people from mainland China. Canada’s Security Intelligence Service was alerted to what was taking place but failed to act and dismissed important evidence of the scam presented by one of its own.
In evaluating the potential threats posed by America’s mounting debt, China is not the only country in the spotlight. Rising debt ultimately weakens America, forcing it to ignore its national interest in favor of wars abroad, unchecked military spending and an ever expanding federal government. At the root of the problem is a dangerous belief America can buy its way out of debt by more borrowing. Like all debt, at some point creditors big and small may decide they want to cash in their U.S. Treasury bonds, or as was rumored in the past year, move to a new global currency established by China and Russia. China has lately disparaged rumors that it was ever keen to replace the dollar as the primary currency but the very fact Beijing has such a financial hold on America could limit U.S. ability to deal with China in the event of a major political or military confrontation.
Barack Obama would do well to remember the saying: “Running into debt isn’t so bad. It’s running into the creditors that hurts.” In America’s case it is worth noting that some of those creditors are heavy hitters.