Thursday, June 11, 2009

Worried About China Buying Our Debt? I'm Not.

Some friends at work have expressed concern (and I have seen it all over the news) about China not wanting to buy anymore of our debt. Somehow they have a strangle hold on us. I don't see it that way. Let me go over some ways to look at it.

First what is the National debt? Well, it is the US Treasuries (Bonds, Notes, and Bills). I own tens of thousands of dollars of the national debt through my US Treasury purchases. So while as an American I am responsible for a chunk of it, I basically owe it to myself. Everyone can own a piece of the US debt.

Owning the US debt is not the most profitable investment to make, but it is by far the safest. The US has never defaulted on its debt payments. Some people are scared that will happen. I'm not. China and Japan (and others throughout the world) have been buying the US debt for a long time. They recognize that it is a safe place to keep their money. So what if China decided to turn in all of their treasuries one day? Well, that might collapse the American economy. Bad for us right? Yeah, but it would also collapse the world economy, including China's.

Most people don't recognize the power that the US holds. Sure we have the military might to project power, take over countries, etc. ... but this is nothing compared to the economic power that we wield. Over the past 50 years, the industrial revolution has been taken over by the information age and technology revolution. The US has decreased the number of manufacturing jobs (coincidentally, so has the rest of the world) as factories are automated and some places are found that are cheaper to make stuff in.

In spite of this decline, the amount of consumption in America has increased steadily. We consume more than 25% of the world's resources. Since we don't have or make them all here, we import them from everywhere else. The US is one of the top 5 trading partners for nearly every country on earth (as measured by number of imports and exports), and in many cases the #1 importer of a countries products. If the US consumer (read me and you) don't have money to buy silk flowers and t-shirts from China, who else do they have to sell them to. No one.

So destroying the American economy, destroys the world economy. We will come out of it much better than most of the rest of the world, because of our natural resources and our human resources, but it won't be pleasant. China, Japan, and the rest of the world understand this. Which is why they buy American debt as a safe investment, not as a means to control us. And you should too. We have completely left the time when a country was "self-sufficient." We are dependent on others for our resources (so we might as well buy up all the foreign oil that we can now when prices are cheap).

This does not mean that I believe the US should rack up as much debt as possible. However, that decision has already been made, so if there is US debt to buy, I'll take a share of it.

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