China Is Not America’s Banker

Derek Scissors / January 06, 2010

Myth: China is America’s banker.

Truth: China has bound itself to American economic leadership.

The federal government runs a gigantic budget deficit, which will hurt the economy for the next decade. China buys some of the bonds sold to finance that deficit and has about $800 billion in official holdings of Treasuries, plus perhaps an equal amount in other types of holdings. Even so, the conventional wisdom — that the U.S. needs PRC financing to continue our wild spending — turns out to be wrong. Partly because of the damaging jump in the size of the deficit, Chinese bond purchases have become unimportant. (more…)