www.DebtRecoveryInitiative.org


Hanging In The Balance
(opinion/commentary)

When I grew up in the 50's and 60's, we referred to China as 'Red China', and we were taught that next to the Soviet Union, they were the most dangerous country on earth. We had a saying back then to describe our determination to oppose them at any cost: Better dead than Red...

Now, thanks in part to Richard Nixon, they appear to be our friends, and when our government comes up short for the money it needs to fund it's operations, they have become our biggest and best buddy. Here are some interesting statistics taken from the CIA (www.cia.gov) website, a comparison of some key indicators of economic health between the US and China:

December 31, 2008
 China
 USA
GDP
 $7.8T
 $14.58T
GDP-Growth
 9.8%
 1.4%
Imports
 $1.156T
 $2.19T
Exports
 $1.465T
 $1.377T
Current Account
 $368.2B
 ($568.8B)
Cash Reserves/Gold
 $2.033T
 $70.57B
External Debt
 $420.8B
 $12.25T

To emphasize a few points: the last time the United States ran a trade surplus was in 1975, and the surplus was $12.5-Billion. So one might say, we've been living off our national credit-card for over 30 years. Our actual trade deficit in 2007 was $708-Billion.

Of the $3-Trillion in US Treasury securities (T-Bills mostly) held by foreign countries, as of November, 2008, Japan held $577-Billion, major oil exporting nations, over $400-Billion, and China held $682-Billion. Raising the money to pay for our bailout activities means returning to these same countries and asking that they loan us more. It also assumes they will continue to roll-over their existing holdings at maturity. Will they? And what are the implications on our foreign policy if they begin making small reductions in their holdings at the same time as the United States is trying to raise massive amounts of money to pay for bailouts and so-called 'stimulus' measures?

Perhaps the most staggering disparity between China and the USA may be found in the category called "Cash Reserves/Gold", which amounts to how much cash we have on hand in our national "bank account". The Chinese have over $2-Trillion in cash on hand. We have $70-Billion, meaning the Chinese have roughly 25 times more cash than we do. With an external debt of $420-Billion, the Chinese could pay that off immediately if they wanted to, and still have $1.6-Trillion in cash left over. The United States, with an external debt of $12.5-Trillion has barely enough cash on hand to pay the minimum monthly payment on our debt. (I wonder what the late-fees look like on that?)

In spite of these rather horrific numbers, we in the United States are accustomed to thinking of our country as the wealthiest nation on earth, and the most generous to other countries when disasters strike. In May of 2008, a major earthquake hit in the Sichuan Province in China. As is our custom, President Bush pledged humanitarian aid from the United States to China, and as of May 20th in that year, it was reported that the US had delivered over $3-million in various forms of aid to the Chinese. I'm sure they appreciated the gesture. Had I been responsible for sending the official thank-you note from the Chinese government to President Bush, it might have read something like this:

President Bush, thank you for the $3-million.
(Just be sure you keep making those minimum payments on the $500-Billion you owe us...)

Best Regards,
China-One Credit Card Inc.

At the risk of being facetious over a serious matter, this little bit of irony stands as a reminder that our perception of ourselves as a nation tends to lag by a wide margin the reality of change that has occurred in the last several decades. We are the world's largest debtor nation. We have yet to demonstrate that our political process is capable of reconciling the standard of living we want, with our ability to work and produce the net economic output which would enable us to earn it.

Apropos the punchline of this little joke, in May of 2008 we did owe the Communist Chinese government $500-Billion. By last November, that number had increased by $182-Billion, therefore we may infer that over half of the $350-Billion in TARP bailout funds distributed by the Bush administration to companies like Citigroup, Bank of America, AIG, et.al, were borrowed from China. They were not required to make those additional loans, nor are they required to renew them when the Treasury notes they purchased mature. Because they are in a much stronger position than we are finanically, they can afford to make decisions which may have little consequence to their own economy, but which would have major consequences for ours.

If the consensus amongst all of the economists and politicians is that we have no choice but to borrow another $1-Trillion or so in order to prevent an economic catastrophe (as President Obama has reminded us repeatedly in the last several weeks), should we not require him to explain in some detail the specific mechanisms by which those funds will extricate us from that peril? So far, we have heard nothing of the kind. Unless we require it of him, my fear is that we never will.

If You Care, Take Action!

If you believe these ideas may contribute to the national discussion of this issue, I strongly urge you to pass this along to anyone you know who might also find it useful. Even better, call your Senators and Representatives in Congress. Their phone numbers may be found here: Senators  /  Representatives

Each member of Congress has staff assigned to take your calls. They are usually very courteous and will listen to what you have to say. Tell them what you believe the Congress should be doing. Your effort to contact them sends a powerful message that you care about this issue.

Return to: www.debtrecoveryinitiative.org
Comments: ted@debtrecoveryinitiative.org