Monday, February 28, 2011

Worrying about China

Ian Talley at the Wall Street Journal's Real Time Economics blog draws our attention to new numbers on just how much US debt China actually owns. A recent revision takes into account China's practice of routing its purchases of US securities through other countries, especially the UK. China's holdings were revised upwards by $268.5 billion, while the UK's holdings were revised downward by $269.2 billion.

The revised numbers for the largest holders of US debt can be found here. China owns $1,160.1 billion, even after the recent revision. The "Grand Total" of foreign holdings of US securities is $4,439.6 billion, near the bottom of the table. Total US federal debt is about $14,193 billion.

Compare that total to China's mere $1,160.1 billion. China's portion might sound like a lot, but it's only 8.17% of the total. I often hear complaints that China owns the US, but this could hardly be further from the truth. If you owed $100 to a bunch of different people, would you be very concerned with the one guy you owed $8.17 to?

To put it another way, US GDP in 2010 was $14,657.8 billion, meaning total federal debt is about 97% of the country's total income in 2010. If you started on January 1st, and took every dollar of income in the country to pay back the debt, starting with China, you would have paid back China by January 29th. But you'd still be paying off the rest of the debt until December 20th! Still think we need to worry about China?

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