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National Debt

U.S. at Mercy of China?

  • July 30, 2009

    With China holding $1.5 trillion of U.S. debt in the form of securities, their ability to leverage the U.S. into doing what they want is at an all-time high. What makes matters worse, is that their leverage will only increase as the U.S. continues to auction off its debt in order to pay for programs and keep the government running.

    At a meeting with Chinese bankers, President Obama was inundated with questions regarding his economic plan as well as the ability for the U.S. to at least stop the hemorrhaging of money in the form of debt, let alone start to pay it off. Further devaluation of the dollar would cost China an tremendous amount of money and make it less likely to purchase as much U.S. debt in the future, which would have a negative impact on the functioning of our government.

    The amount of indebtedness to China has not escaped both parties involved, with the U.S. scaling back its requests for change and the tone it takes, as it generally is not advised to be critical of the entity that is keeping you afloat.

    This dynamic has the potential to cost the U.S. long term as one day, China may decide to call in a favor for all the debt that they are holding, leaving the U.S. held hostage to a country we rarely see eye-to-eye with.

    Should the U.S. not abide by a forceful China's demands, China could easily sell back enough portions of their holdings to cause at least the threat of an economic crisis, and the U.S. would have no options other than to do what China wants, or face a potential economic collapse.

    There is no easy way out of this predicament; it has taken decades to get to this point and it will take even longer to get out. The first thing that must occur is to control our spending and ensure that the taxes being brought in are enough to pay for what is going out. We cannot afford to be a consumer country anymore, those days have passed.

    The U.S. government needs to either drastically reduce its size of drastically raise taxes in order to create budget surpluses so that in addition to having a balanced budget, the astronomical debt can start to be repaid and our country put back onto firm financial ground.

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