China’s Ownership of US Assets

Business Insider’s politics columns are often surprisingly leftist.  This one, for example: “The Silliest Chart You’ll See In The Paul Ryan Debt Plan

The message he’s trying to convey is clear: More and more the U.S. is going cap-in-hand abroad to fund government spending. The Chinese (whom Mitt Romney has accused of not trading fairly with us) own a huge chunk. Ergo we’re at their mercy.

This is a popular notion, and a candidate running on a scare platform is wise to tell this story, but the story is nonsense on stilts.

China has no financial leverage over the US, and the idea of the government having to go beg foreigners in order to spend U.S. dollars is a myth.

To prove that China’s leverage over US policy is a “myth,” the author links to a PDF file … which proves him wrong, in abundant detail.  It also notes that Obama and Ryan were exactly in agreement about their concerns over China’s ownership:

What are the security implications of China’s creditor status? If Beijing or another sovereign creditor were to flex its financial muscles, would Washington buckle? Many analysts believe the answer to be yes. In December 2008 James Rickards, an adviser to U.S. Director of National Intelligence Mike McConnell, observed that China possessed “de facto veto power over certain U.S. interest rate and exchange rate decisions.”9 Similarly, Gao Xiqing, the head of the China Investment Corporation (CIC), recently warned, “[The U.S. economy is] built on the support, the gratuitous support, of a lot of countries. So why don’t you come over and . . . I won’t say kowtow, but at least, be nice to the countries that lend you money.”10 Whenever sovereign creditors appear to lose their appetite for dollar-denominated assets, it becomes front-page news.

The report goes on to suggest that it would damage China’s interest to exert too much pressure. But as it notes, US policy changes constrained by China’s financial pressure have already happened — and if US officials believe that they must appease China, it doesn’t much matter what academics say. Mutually assured financial destruction is not quite the same as its nuclear counterpart, and the Chinese are thinking every day of how to take advantage of their increasingly powerful position.

Back to the Business Insider article — he shows a chart that looks like China’s investment fluctuates substantially, except that (1) it is only a small part of China’s US holdings, and (2) the graph only shows the top few percent of the value. Far from being “silly,” Paul Ryan’s chart reflects the continuing weakness of the US’s profligate spending habits — and their impact is already being felt.

===|==============/ Keith DeHavelle