Johnson: Foreign-Owned Debt Threatens American Economy
Johnson: Foreign-Owned Debt Threatens American Economy
China, Japan own much of $2 Trillion Debt
U.S. Senator Tim Johnson (D-SD) today expressed concerns that increasing foreign ownership of American debt threatens our economy by giving foreign nations too much control over the value of the dollar. Last year, American taxpayers paid roughly $80 billion in interest to the foreign investors and foreign central banks who own our debt.
"I have serious concerns about whether it's prudent to give any foreign country substantial leverage over the U.S. economy," said Johnson. "Instead of spending $80 billion on important programs here at home, we're sending this money overseas just to pay interest on our debt. We could fund water projects in South Dakota, the Community Service Block Grant program to build small businesses on Main Street, or address so many other priorities. I do not want to see American taxpayers footing the bill for irresponsible budgeting."
Recently, the Korean central bank indicated that it plans to limit its dollar holdings and purchase different currencies instead. Following this news, the value of the dollar and stock prices fell sharply while oil prices rose to more than $50 a barrel. If countries holding much of our debt were to sell a large amount of U.S. dollar holdings it could have a devastating impact on the American economy.
The recent announcement from Korea indicates America may have reached its credit limit with that country.
Johnson contacted Treasury Secretary John Snow with his concerns. Currently, Asian central banks hold about $2 trillion worth of U.S. debt, with Japan and China leading the pack. OPEC nations in the Middle East hold about $44 billion of our debt.
Johnson asked Secretary Snow whether the U.S. can sustain current levels of deficit spending by financing our public debt.
"A balanced budget takes us in the right direction. Clearly, adding billions and trillions of dollars to our debt takes us in the wrong direction," Johnson said.
The U.S. Treasury finances our $7.5 trillion debt, which has exploded after four consecutive years of record budget deficits, by selling bonds and other debt instruments to private investors and foreign countries.
*** Letter Attached Below ***
March 9, 2005
The Honorable John Snow Department of the Treasury 1500 Pennsylvania Avenue NW Washington, D.C. 20220
Dear Secretary Snow:
I am deeply concerned about the long-term health of our economy given the weakening value of the dollar concurrent with deficit spending that ballooned to over $400 billion last year. The Washington Post recently reported that Korea's central bank plans to limit its dollar holdings and invest more of its holdings in the currencies of other countries. Regardless of whether we can find buyers for our debt instruments in the short-term, this announcement calls into question whether the United States will be able to sustain existing levels of spending in the long-term and the implications of this spending on American taxpayers.
I would appreciate any insight you might have on whether the United States can continue to rely on foreign central banks to finance our debt, given that other central banks are also rethinking their currency holdings. As well, please share your agency's position on whether the federal treasury will become increasingly reliant on private investors foreign or domestic to finance our debt, and whether this will necessitate a rapid increase in the interest paid on our debt.
As the dollar weakens, I fear our debt instruments will continue to become less attractive to private investors unless we increase the interest for which American taxpayers are footing the bill. We paid over $300 billion in interest on our debt during 2004 more than the combined budgets of the Department of Housing and Urban Development, the Department of Veterans Affairs, the Department of Education and the Department of Agriculture. Roughly $80 billion of this debt service went overseas to foreign investors and foreign central banks, providing capital to foreign governments abroad while many of our domestic capital needs went unmet.
The United Statesexemplified by the strength of the dollarhas led the world in economic vigor and stability over the past century, but I have grave concerns about whether our current fiscal course will allow this economic vigor and strength to continue through the next century. Thank you for your timely consideration.
Sincerely,
Tim Johnson U.S. Senator
http://johnson.senate.gov/~johnson/releases/200503/2005309659.html