Future shock inevitable from foreign-owned U.S. debt

The message reminds taxpayers that without significant spending reform, the country’s debt burden is unsustainable, and the effect on the nation will be devastating. The Congressional Budget Office forecasts that the gross federal debt (debt held by the public plus debt held by government accounts including Social Security) will exceed the gross domestic product in every fiscal year from 2011 to 2021.

What makes the debt even more alarming is that foreign holdings make up nearly half – 47 percent – of the country’s obligations. In fact, foreign holdings of the U.S. debt have more than doubled in just the past five years from approximately $2 trillion in 2005 to $4.3 trillion in 2010.

There are real consequences to foreign-owned U.S. debt, especially when it is being held by non-democratic countries like China, and oil exporting countries like Libya, Iran, Iraq, and Nigeria, which combined are the fourth largest foreign holders of U.S. debt. Look no further than the nightly news for a taste of how dangerous it is for the United States to be at the mercy of dictatorial regimes. Underscoring this point, in August 2010, Joint Chiefs of Staff Chairman Adm. Mike Mullen called the national debt, “the most significant threat to our national security.” What’s more, the terrible earthquake and tsunami in Japan – the second largest foreign holder of U.S. debt – means that nation will be rightly using more of its resources to address its own needs rather than sending billions of dollars overseas.

As the CAGW ad puts into sharp relief, the federal government’s wasteful spending and borrowing policies have created a precarious relationship between the United States and China, in particular, which owns $1.2 trillion – or 26 percent – of the $4.45 billion in U.S. debt held by foreign nations. The Chinese government has said that it will not use its large U.S. Treasury holdings as political leverage, but that position is always subject to change. China’s share of American debt will continue to rise and its economic prowess in Asia will grow, while the United States risks becoming irrelevant in the region.

In April, Washington will have reached its self-imposed debt limit; but instead of making the hard decisions necessary to slash spending, Congress is talking about raising the debt ceiling even higher. This is hardly the first time this has been done. In fact, Washington has raised the debt ceiling 75 times since 1962 – an average of 1.5 times every year – and this would be the third time during the Obama administration.

If an individual maxes out his or her credit cards again and again, the bank would eventually put an end to the line of credit and there would be a default on the payments. After enough irresponsible spending, there are no more credit cards.

Washington has papered over the debt for decades by putting the payment off on our national credit card. But the bill is coming due. For the next two weeks, CAGW is doing its best to remind taxpayers that failing to solve the problem not only burdens future generations with crushing debt, but also threatens the long-term economic and national security of the nation.

Tom Schatz is the President of Citizens Against Government Waste. See the "Chinese Professor" ad here.