House Speaker Kevin McCarthy has a plan to hold the Biden Administration accountable for all the money the U.S. government spent during the Donald Trump administration, the spending of which McCarthy, as a member of Congress, approved.
McCarthy’s plan — to force political and budgetary concessions from Biden by using the debt ceiling for leverage — also includes, to be sure, all the government spending during the Biden administration, as well as during the Clinton, Bush, and Obama administrations. Note: All the budgets leading to the size of the current national debt were approved by Congress.
Now McCarthy — in negotiations with Biden using the debt ceiling as a “negotiating wedge,” something even Donald Trump said was bad form — is repeating the narrative that the U.S. is “borrowing money from China.” McCarthy has tried a few different narratives to push his agenda – including disingenuously equating the federal budget with a family budget — but bringing China to the table is relatively new.
McCarthy portrays Biden and America as desperate debtors in hock to a giant loan shark named China. It’s meant to emphasize a sense that the country’s own economics are out of U.S. control, when the reality is very different (see below).
McCarthy says “Let’s stop” when it comes to borrowing from China, though the Speaker’s proposals don’t do anything to discourage China investment in the U.S., the more apt term for “borrowing from China.”
I literally asked the president: "What is the number? How much debt must America have before you say, 'let's stop borrowing from China?'" pic.twitter.com/nAd1wMtDOw
— Kevin McCarthy (@SpeakerMcCarthy) May 21, 2023
The explanation of how the “borrowed” China money really works is below. But for perspective, first a related note that China’s investment in U.S. treasuries has dropped significantly since the U.S. started raising interest rates.
Q: Does the U.S. really borrow money from China, or is it more of a case of China investing in the U.S.?
A: China holds a significant amount of U.S. debt in the form of U.S. Treasury securities, which are government bonds issued by the U.S. Department of the Treasury to finance government spending and manage the national debt. However, it is important to note that owning U.S. Treasury securities does not mean that China is directly lending money to the U.S. government.
When China purchases U.S. Treasury securities, it essentially invests in these bonds, providing funds to the U.S. government. In return, China receives interest payments on its holdings. This investment in U.S. Treasury securities allows the U.S. government to fund its operations and meet financial obligations.
The U.S. government borrows money through the issuance of Treasury securities from various sources, including domestic and foreign investors, such as China. Other countries and entities, including individuals, banks, and other governments, also hold U.S. Treasury securities as part of their investment portfolios.
It’s important to recognize that the relationship between China and the U.S. in terms of debt and investment is complex and involves multiple factors. The U.S. government’s borrowing practices, the global financial market dynamics, trade imbalances, and geopolitical considerations all play a role in shaping this relationship.
