China’s Ownership of U.S. Debt Called a ‘Myth’
The widely held belief that China “owns” the United States because it has accumulated a large percentage of America’s outstanding debt is a “myth,” according to a report from the Cato Institute. “The myth is that the Chinese own a large amount of the public debt of the United States and are continuing to add to the debt in large amounts each year,” writes James A. Dorn, editor of the Cato Journal. “The reality is that the Chinese own a very small amount of the debt.” At the end of 2011, when America’s gross public debt stood at $14.3 trillion, China’s holdings amounted to just $1.2 trillion, or 8.4 percent of the total. Foreign holdings excluding China stood at 22.4 percent, and domestic holdings at 27.3 percent. But the largest percentage of debt was held by the Social Security Trust Fund and the Federal Reserve: 39.9 percent or $5.7 trillion. The Federal Reserve in fiscal 2011 was the largest buyer of new U.S. Treasury debt, acquiring 77 percent. The fact is, China’s holdings of American debt equal barely more than a third of its total foreign exchange reserves. The real cause of the U.S. debt crisis — debt had risen to more than $16 trillion at the end of last year — “is overspending and an explosion in entitlements, especially Medicare and Medicaid,” says Dorn, a professor of economics at Towson University in Maryland. “The stimulus programs in response to the 2008-09 financial crisis have also contributed to U.S. public debt. “It is time to stop blaming China for the debt crisis.”
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