Is China Funding U.S. Debt?

[Mike]

I keep hearing people erroneously claim that China is funding US deficit spending. It seems that every eejit with a fundamental misunderstanding of mathematics (and access to Xtranormal's animated talking bears) has been pushing this concept.

It turns out to be only partially true — and by partially, I mean 7.5% true. But that means the statement is 92.5% false.

The biggest holders of US debt are American individuals, institutions, and Social Security. We own more than 2 out of every 3 dollars of US debt — about over 67%. Hence, we depend far less on the kindness of strangers than you might imagine if your listen to the intertubes.

Those viral animated bears may be clever, but they sure suck at math.

Total United States' public debt was ~$13.562 trillion at the end of the fiscal year (30 September 2010). As of last week, January 4, 2011, the United States' total public debt outstanding has surpassed 14 trillion dollars.

Political Calculations has whipped up a chart showing exactly who is holding US debt, and funding our deficit:

SEE THE ACTUAL TRUTH HERE:
http://www.ritholtz.com/blog/2011/01/is-china-really-funding-the-us-debt/

 

[Tex]

I keep hearing people erroneously claim that China is funding US deficit spending. It seems that every eejit with a fundamental misunderstanding of mathematics (and access to Xtranormal's animated talking bears) has been pushing this concept.

It turns out to be only partially true — and by partially, I mean 7.5% true. But that means the statement is 92.5% false.

The biggest holders of US debt are American individuals, institutions, and Social Security. We own more than 2 out of every 3 dollars of US debt — about over 67%. Hence, we depend far less on the kindness of strangers than you might imagine if your listen to the intertubes.

Those viral animated bears may be clever, but they sure suck at math.

Total United States' public debt was ~$13.562 trillion at the end of the fiscal year (30 September 2010). As of last week, January 4, 2011, the United States' total public debt outstanding has surpassed 14 trillion dollars.

Political Calculations has whipped up a chart showing exactly who is holding US debt, and funding our deficit:

SEE THE ACTUAL TRUTH HERE:
http://www.ritholtz.com/blog/2011/01/is-china-really-funding-the-us-debt/

That was a great graphic, Mike. I don't think anyone here has asserted that China owns most of the national debt of the U.S. but they are using their foreign earnings from dollars to buy a huge chunk of it. This has all been in a relative recent time horizon. This isn't 92% false, it is 100% correct.

When the Japanese ran up huge trade deficits the United States required them to build their plants in the U.S. Now we have all the Japanese cars over here in the U.S. that provides jobs.

The amount of debt owned by foreigners has increased by about 3.4 trillion dollars since 2001.

The part of the debt held by the U.S. govt. has gone up from 2.8 trillion to 6.2 trillion of the 14.3 trillion outstanding.

This is just U.S. debt, not other assets that they may own here in the U.S.

As of Oct. 2010, China is estimated by the US Treasury to have roughly 900 billion in holdings–the most of any creditor, but only barely ahead of Japan's holdings, which are at 877 billion. Find it here:

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

It's not in a flashy pie chart on their website, just a list of creditors.

As some have pointed out, it is utter nonsense for anyone to claim that China (or any other foreign entity) funds our fiscal deficits. It is closer to true to say that China funds some of the trade deficits, just as Japan, et al, do. But trade deficits matter a great deal more than most pundits would claim. Our trade deficits (which always must be balanced by a financial instrument surplus, i.e., if we import more gadgets, we must necessarily export more paper promises) with China and others during the nineties and aughts were one of the reasons for the sequential bubble-blowing–stocks and then houses–from which we suffered. Trade deficits loom heavily over housing even now. We might not be able to fund them if we simply allowed, e.g., Fannie and Freddie, to disappear.

Tex