China is poised to lose its place as the U.S.’s biggest creditor for the first time since the height of the financial crisis, blunting one of Mitt Romney’s favoured attacks in the presidential campaign.
Chinese holdings of Treasuries fell 0.2 per cent this year through July to $1.15 trillion, the latest government data show. Japan, a stronger ally of the U.S., raised its stake by 5.6 per cent to $1.12 trillion, on pace to top the list of foreign creditors by November. (Bloomberg)
Question: does anyone care? Answer: Not really.
I wouldn’t have thought twice about this story if it wasn’t for the fact that there is an entire industry out there in and around Washington devoted to pushing the scary notion of China as the evil banker that will, at some point in the near future, swoop in and foreclose on the United States.
Mitt Romney, would-be president, has been pushing the hell out of this theme for months now. He commonly tacks on snide comments about borrowing money from China when discussing fiscal policy choices. For example, instead of just saying that he doesn’t like the Public Broadcasting Service, he says this:
I like PBS, I love Big Bird. Actually like you, too. But I’m not going to — I’m not going to keep on spending money on things to borrow money from China to pay for.
This is a favourite line by U.S. politicians, particularly those who are trying to justify austerity and fiscal restraint. If they want to cut something, that argument is apparently strengthened when they can say to their opponents: “This is so important that you are willing to borrow from the Red Communist Chinese to pay for it, hmm?”
I wrote about Romney’s problems with this line of attack less than a month ago, noting at the time that:
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.
Looks like that gap is now zero, with Japan looking to break away from China. Romney’s comments were always ridiculous, and now even more so. But will we see any change in the Romney campaign in response to the facts?
Ha ha ha. No, of course not. Why should he? Journalists won’t ask him about this issue and the Obama camp would probably rather not talk about any topic that includes the word “debt.” Moreover, to be honest, the public doesn’t care either.
Unfortunately, if no one pushes back on this, Romney will continue with the China bashing and millions of Americans will continue to believe that China is U.S. Banker #1.
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