There’s often a misconception that China owns most of the U.S. debt. They aren’t anywhere close to holding the majority of our debt. Don’t get me wrong, I don’t think any foreign entity or person should hold U.S. debt. But, they do, and we hold some of other nations’ debt as well.
Towards the US debt, we have about $16 trillion in debt. But, about 1/3 of that is held by foreign entities. Sorry about the clarity of this graph, but notice the total number. Now, this was 2010, so the total U.S. debt was 2-3 $trillion less then. So we can say about 1/3 of US debt is held by foreign entities. Of that, China holds about 25%.
Now, that should be the end of the post. This dispels the notion that China owns most of the U.S. debt. But, that’s not the end of the story. Or, even a true beginning.
I don’t want China to buy our debt. I don’t want anyone to buy US debt. Once this happens, we are in a sense, and in reality, beholding to the people who buy our debt. Obviously, other people see things differently.
Germany’s Angela Merkel makes her second trip to China in half a year this week, hoping to strengthen booming trade ties and obtain assurances from Beijing that it will support the fragile euro zone by buying the bonds of its stricken southern members.
German officials say the talks will cover a wide range of issues, from energy, climate and cultural links, to sensitive subjects like Syria.
But the focus for Merkel and her delegation – which includes some 20 top executives from bluechip firms like EADS <EAD.PA>, Siemens <SIEGn.DE> and Volkswagen <VOWG_p.DE> – will be reassuring Chinese leaders about the stability of the euro zone and Germany’s determination to keep it together.
“We need to convince China, as we do other investors, that euro investments are stable and secure,” a senior aide to Merkel told reporters on Tuesday in Berlin.
Big Chinese investors were forced to take substantial losses on the Greek bonds they held earlier this year when Athens pushed through a debt restructuring backed by its European partners, including Berlin. German officials now acknowledge that this hit Chinese confidence in the currency bloc.
On Thursday evening, Merkel will participate in a dinner with China’s central bank chief, finance minister and the head of its $480 billion sovereign wealth fund, to try to convince them Greece was a one-off and that battered Spanish and Italian bonds are attractive, aides say.
Still, Beijing has stopped short of offering specific commitments of cash to help shore up European banks or sovereign borrowers and Merkel is unlikely to receive more than encouraging words in Beijing.
The reality is that China’s interest in Germany has soared over the past decade, but at the expense of other countries in Europe. While Germany’s power and influence have grown as the crisis has deepened, France is seen in China as weakened and Britain marginalized.
There is more to the link but, I’ll stop there. In my estimation, Britain is looking less and less marginal. Germany has taken front view, but some of that view isn’t what we want to see. They want/need China to buy the debt because?
It’s been 5 years. In the US, we worry because we haven’t jumped but have only had vers small gains. South Europe only loses.
I firmly believe the southern nations would be better off defaulting and then printing their own money. Yes, the US and the rest of the world would take a hit. But, we’re in a position to absorb it. But, if we continue to send capital down the money holes the the problem continues to get larger. The time to stop is now.