China and U.S. Debt

As the U.S. federal debt is steadily climbing closer to $17 trillion, President Obama and Congressional leadership are making statements that we “don’t have an immediate crisis in terms of debt.” All the same, our bloated federal debt does pose a crisis. Not only will it slow economic growth, threaten us with higher interest rates, and increase inflation; it also allows China to threaten our national security and status as a world power.

How does China’s ownership of the U.S. debt really pose a danger to our national security?

China currently owns over 7% of U.S. federal debt via U.S. treasury securities. If China were to decide to dump those treasuries, it would greatly increase the burden of servicing U.S. debt. This could lead to a currency crisis forcing the U.S. to raise interest rates. Higher interest rates and higher risk for borrowers will potentially make it difficult for the U.S. to find creditors and will create the conditions for a recession.

Additionally, statements made by numerous Chinese officials have expressed support for the use of U.S. debt ownership as a weapon. Statements such as a senior editor of the state-run media outlet China’s People’s Daily who wrote, “now is the time for China to use its ‘financial weapon’ to teach the United States a lesson if it moves forward with a plan to sale arms to Taiwan.” In addition, according to China Times, the country’s central bank deputy governor Yi Gang announced, “China is fully prepared for a looming currency war should it, though ‘avoidable,’ really happen.”