Mitt Romney has said some mighty stupid things in the past couple of weeks, so I can’t exactly put the below quote forward as competitive in the “Top Romney Gaffes” list. In terms of China policy, though, this is not only an inane non sequitur, but it’s also quite misleading:
I’m going to look at every federal program and I’ll ask this question, “Is this so — program so critical it’s worth borrowing money from China to pay for it?” And if it doesn’t pass that test, I’m going to eliminate the program because we just can’t afford to keep spending more money than we take in. This is, this is something which is not just bad economics. I think it’s immoral. (Foreign Policy)
Total U.S. government debt hit the $16 trillion mark at the beginning of this month. As of July, the amount of debt owed to foreigners was roughly $5.35 trillion, or about one-third of the total. So already, when Romney suggests that government debt equates to borrowing from foreigners, he is being misleading.
But even that 33% might seem scary to some folks. Just who are these creditors? Well, among the top creditor nations include the UK ($141 billion); Switzerland ($190 billion) and Belgium ($144), not exactly countries that are hostile to the United States.
China of course is at the top of the list and always held out as the bogeyman, as Romney’s words illustrate. When you hear late-night comedians talk about the U.S. owing so much money to China, you might think that their ownership percentage of U.S. debt must be quite high. In fact, as of July, it was only about 7.2% of total U.S. debt, or about 21.5% of all foreign-held U.S. debt.
By the way, #2 on the list of foreign creditors is Japan, which has been upping its purchasing of U.S. treasuries this year, while China has been reducing its buys. As of July, China held only about $40 billion more than Japan. That gap might even be narrower now.
So Romney is essentially suggesting that every dollar of government debt equates to borrowing from China, when in reality, we’re only talking about seven cents on the dollar and most likely comparable to what the U.S. owes to Japan at this point. But of course Japan isn’t as scary as the Commies in Red China.
Now, Romney can deny that he is being deliberately misleading. He can say something like “I never said thatall of the borrowing was from China, just some.” Right. So Romney wants us to believe that his entire calculation on federal spending will be based on the fact that China represents seven percent of borrowing? Even 7% is too much! Does that make even a tiny bit of sense? As usual, he is either lying his ass off or is mentally deficient (I’ll go with the former explanation).
In addition to this dishonest fear mongering that totally ignores real data, Romney never bothers to explain what this “test” might look like. How exactly would a President Romney determine whether a federal program was worth borrowing from China anyway? I mean, if you ask me, I’d borrow as much as possible from China at these low interest rates – what a bargain!
To the question of whether Romney’s statement about the “bad economics” of Keynesian recessionary spending is concerned, I’d suggest you go read Paul Krugman or just about any other economist who isn’t a supply side ideologue. And as for the “morality” angle, well, hearing that from the mouth of a politician just makes me laugh.
The sad part of all this is that I bet if you polled the American people and asked them “How much of our debt is held by China?” you’d probably get a number like 80%. I bet Romney’s words resonate with some folks.
About The Author - Stan Abrams is a Beijing-based IP/IT lawyer and law professor with an M.A. from Johns Hopkins in International Relations, a J.D. from Boston College Law School, a B.A. from Pomona College, and writes at China Hearsay. (EconMatters author archive here)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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