As of the end of February, the U.S government owed China $744.2 billion. Given that our government has borrowed many billions since then, and is set to borrow over $1 trillion more this year (hoping that the Chinese loan us about 60% of it), that already breathtaking number is set to grow significantly. For those curious about the details of foreign holdings of US government debt, it is reported here: http://www.treas.gov/tic/mfh.txt
As I’ve said many times, there is no realistic way we can honestly repay this debt. It’s just too great and we don’t have the fiscal discipline to even consider paying it off. No one even pretends any more. But, of course, we will pay dearly for having incurred it.
It is amusing, however, in a disturbing way, to imagine how our leaders might announce a decision to get serious about paying this debt.
The following is a paraphrase of something I heard in a speech by Peter Shiff.
Imagine President Obama coming on television in prime time, and saying to the American people something like this: “My fellow Americans, I come to you tonight to be the bearer of some bad news. Effective immediately we must implement an across the board significant tax increase. And for those of you on social security or military pensions, I am sorry to announce that your benefits must be reduced immediately. And all those great ideas I had for universal healthcare, improvements in education, and energy independence, well they’re just going to have to wait. Why are we doing these things? Because, my fellow Americans, we owe the Chinese people about a trillion dollars. They loaned us their savings, and we spent it. But we are good for our debts. They worked hard for that money, and we’re going to just tighten our belts and pay them back. God bless America.”
Can any of us imagine any politician ever, EVER, saying something like that? Heck no. Instead, when the day of reckoning arrives, our president is much more likely to say something like: “This was predatory lending. They never should have loaned us that money. They knew we couldn’t afford to pay it back.”
Now put yourself in the shoes of the Chinese. They are working hard to make stuff for us to buy. They save over 50% of what they earn, they deposit it into their savings accounts and their banks loan it to us. Does that sound like a wise move in light of what I wrote above? Would you continue to loan the US money you know it can never repay and will not repay even if it was possible to do it? I wouldn’t. And the day is fast approaching when they won’t either.