Tags: debt | currency | reserves | holdings | China | Japan

China's Hold on US Debt Falling, But Public Thinks Otherwise

By    |   Monday, 29 Dec 2014 12:24 PM

In its monthly report released on Dec. 15, the Treasury Department announced that, as of October, China held $1.25 trillion in U.S. debt, which represented a $13.6 billion decline from its share in September.

While China continues to hold its place ahead of Japan as the single biggest foreign holder of U.S. debt, its share of that debt has been on a downward trajectory since November 2013, when it held an all-time high of $1.317 trillion, reported Forbes in August.

The downward trend is likely to continue as China refocuses its attention on other currencies.

"This is a big change, and it cannot happen too quickly, but we want to use our reserves more constructively by investing in development projects around the world rather than just reflexively buying U.S. treasuries,"  a senior Chinese official told The Financial Times.

"In any case, we usually lose money on treasuries, so we need to find ways to improve our return on investment."

Despite the evidence to the contrary, there is a commonly held perception that the communist nation controls 50 percent of U.S. debt.

It is one of a number of "public myths" about public policy highlighted during a recent conference held by the American Press Institute.

George Washington University professor Emily Thorson and her staff interviewed 250 randomly selected people and asked them whether China holds more than half of the U.S. debt or whether it holds less than half, reports Glenn Kessler, the Washington Post's Fact Checker.

Among those interviewed, 50.7 percent said China owned at least half of U.S. debt, while 16.8 percent said less than half and 32.5 percent said they were not sure.

Kessler's own fact-checking of the claim found that much of the publicly traded debt is held by private investors, not foreign governments.

"Nearly one-third of the debt held overseas is not held by governments but by private investors, according to the Treasury Department. Put another way, only about one-third of publicly traded debt is held by foreign governments — and China barely is in first place among many," he writes.

One of the reasons for the continuation of the myth is that politicians continue to invoke it.

In a 2008 appearance in North Dakota, then-candidate Barack Obama alleged that President George W. Bush had taken "out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents —  number 43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman and child. That's irresponsible. It's unpatriotic."

In August 2008, a month after Obama's speech, Japan exceeded China's treasury holdings, according to Bloomberg News.

More recently, Kessler notes, former vice presidential candidate Sarah Palin asserted that government programs are paid for "by taking money from our children and borrowing from China. When that note comes due — and this isn't racist . . . but it's going to be like slavery when that note is due, right?

"We are going to be beholden to a foreign master."

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While China continues to hold its place ahead of Japan as the single biggest foreign holder of foreign debt, its share of U.S. debt has been on a downward trajectory since November 2013. Yet there is a commonly held perception that the communist nation controls 50 percent of U.S. debt.
debt, currency, reserves, holdings, China, Japan
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2014-24-29
Monday, 29 Dec 2014 12:24 PM
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