China Blues – The Next Republican Deficit Meme
Looking around the country you would think the easiest thing in the world to get passed would be a jobs bill or another stimulus. The number of unemployed Americans is critically high and the business climate is pretty dismal. The growth we saw in the economy in the last quarter was due to businesses restocking inventory, the cash for clunkers program and the stimulus. Without more help, it will not be repeated.
Yet the Republicans are going to go nuts about the deficit and the debt. It does not matter to them that they were primarily responsible for running it up with two unpaid for wars, taxes cuts to the wealthiest Americans and the prescription drug bill. They are going to scream bloody murder that we are mortgaging our children’s future, even though they and their fat cat buddies are not going to do anything to pay down what they spent.
One of the big scare tactics, which you are going to hear about in the next few weeks, is the amount of money we owe to the Chinese. There was even a Super Bowl commercial from Rick Berman’s Astroturf group the Employment Policies Institute (you have to give it to Conservative Astroturfers they have the Orwellian names down) with cute little kiddies saying a new pledge to China and the Debt. You can see it here.
In a really narrow view of the world, this is a concern that we owe a debt to China. As of September they owned 23.35% of our public debt in the form of bonds. That sound high and scary doesn’t it? The scary commies own nearly a quarter of our debt! They will make the kiddies say a pledge!
However, Japan owned 21.3% of our public debt, anyone want to get freaked out about the Japanese wanting an oath? The thing here is that Japan and China are the two and three largest economies in the world, behind the United States. So, who else is going to buy our bonds?
The other thing to keep in perspective is that the U.S. is both Japan’s and China’s largest market. We buy more of what they produce than anyone else in the world, which is part of why they buy our debt. It completes the circle and allows then to keep a higher level of growth than they could manage without funding our buying.
But you won’t hear any of that from the Republicans. All you will hear is that we can’t let these bloody foreigners own have so much of our debt. They will be doing this in order to push for spending cuts. And you all know where those cuts would come from don’t you? Got it in one! Social programs like Social Security, Medicaid e and Medicare.
They are going to pound the idea that the Chinese will somehow decide they are going to put the screws to the U.S. and keep us from doing…something. Like all Republican arguments, it is completely spurious.
What the Republicans are missing is the fact of China’s population and its need to move the majority into productive industrialized work. The Chinese have a much higher tolerance for excess in terms of capacity than we do. Right now Beijing there is a 36% vacancy rate in their down-town business district high rises. In the U.S. this would a catastrophe, but the goal of the Chinese government is growth and industrialization for the nation as a whole so the vacancies don’t matter as much as putting up more buildings.
This is the same story with buying U.S. bonds. Yes, our economy is in bad shape right now and the investment on bond does not look as good, but the Chinese are nowhere near giving up on buying them because the purchase serves their economic goals.
There will be a time when we need to pay down what we have borrowed. There is no such thing as a free lunch in this world. However, that time is not now. We must get our economy going again and the way to do that is the way we did it after the great depression, with lots and lots of government spending.
Take a look at this graph:
At the peak of the war spending the deficit as a percent of GDP was 29%. Today we are not quite to 11%. Clearly we were able to pay down the debt we incurred in fixing the Great Depression, we will be able pay down the costs of fixing the Great Recession.
In the end, we have to debunk and debunk and debunk what the Republicans and their Astroturf groups spew. There are real problems in the United States, but raising taxes on the top 2% of earners is not and should ever be one of them.
The floor is yours.