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Article Artículo

Economic Growth

Government

Debt to China: Budget Deficits and Trade Deficits

Much of the concerns about the budget deficit often relates to the fact that we owe a substantial portion of the debt to China. Linking the debt to China with the budget deficit reflects a mistaken understanding of the economy. In a post for the Roosevelt Institute's Econobytes, economist Dean Baker, co-director of the Center for Economic and Policy Research argues there is no direct tie between the size of the budget deficit and our debt to China.
 
The debt to China is in fact far more dependent on the trade deficit, which should be the main concern for those troubled by this debt.

  • The basic logic is straightforward, the trade deficit with China is the mechanism through which China obtains the dollars it needs to buy U.S. government bonds or any other dollar denominated asset.
  • China is in a position to buy large amounts of U.S. government bonds while most other countries are not, because most other countries are not running large trade surpluses. By definition, the fact that China has a trade surplus means that it is selling more goods and services abroad than it is buying.
  • This means that it is accumulating dollars which can then be used to buy government bonds or other U.S. assets.

 There is no special importance to the fact that China’s government is buying government bonds, as opposed to any other asset.

  • If China holds $2 trillion in U.S. government bonds then the interest on these bonds is paid out to China rather than people in the United States. In that sense it can be seen as a drain on the U.S. economy.
  • However if China were to sell its $2 trillion in bonds,  and instead buy $2 trillion of stock in U.S. companies then the dividends and capital gains from this stock would go to China instead of to people in the United States. This would also be a drain on the U.S. economy.
  • There is no obvious reason that we should be less concerned about China or any nation or foreign individuals owning shares in U.S. corporations than we are about them owning U.S. government bonds. In both cases there will be an outflow of payments in future years as a result of the foreign ownership of U.S. assets.
  • If the concern is that a foreign power could disrupt our financial markets by suddenly dumping government bonds, the same concern would arise with a sudden dumping of large amounts of stock of private companies. Both would have a substantial impact on the affected markets and the value of the dollar.

Dean Baker / January 25, 2013

Article Artículo

Workers

State Union Membership, 2012
On January 23, the Bureau of Labor Statistics (BLS) released its estimates for union membership in the United States in 2012. This post focuses on the union membership numbers by state. In addition to presenting the BLS estimates for overall union members

John Schmitt, Janelle Jones and Milla Sanes / January 25, 2013

Article Artículo

The U.S. State Department’s Uninspiring Report to Congress

The Office of the Haiti Special Coordinator under the U.S. State Department has issued a new report to the U.S. Congress as required under the Supplemental Appropriations Act of 2010. The new report covers the period of 180 days up to September 30 last year. While there are some noteworthy accomplishments, these are unfortunately few, and it is important to keep in mind the greater context of money raised, committed, disbursed and spent, as well as the urgent needs at hand. The report notes that of $2.35 billion committed to Haiti since 2010, only about 50 percent has actually been spent. Excluding debt relief, of the $900 million made available in the 2010 supplemental appropriations bill as part of the New York donor conference pledge, just 32.9 percent has been spent [PDF]. It’s also noteworthy that of the nearly $300 million committed in 2012, only about a third was even obligated.

Considering that some 360,000 people are still estimated to be living in IDP camps three years after the earthquake, the report of “over 900 seismic and hurricane resistant houses under construction in Caracol, Northern Haiti and in Cabaret north of Port-au-Prince” seems relatively insignificant, not to mention the figure of “227 Haitian beneficiaries…selected to receive housing” “to date.” This is even less impressive considering that the sprawling U.S. Embassy compound in Port-au-Prince “consists of 107 new [three to five bedroom] townhouse units and a new Deputy Chief of Mission residence, along with support facilities, including a recreation center with an outdoor pool and courts, for two separate compounds,” according to the architectural firm that the State Department contracted to design it.

The report similarly mentions “250 LPG commercial stoves were sold to large charcoal users (street food vendors and schools) in Port-au-Prince” and four “Haitian small- and medium-size enterprises” that “won matching grants” in a “business plan competition.”

The report is also notable for what it does not mention: cholera, for example. This is a word and topic that does not appear once in the report, despite the ongoing epidemic and despite that “Health and Other Basic Services” is “Pillar C” of USAID’s “Haiti Rebuilding and Development Strategy.” Pillar C is allotted three paragraphs of the report; cholera is arguably Haiti’s most urgent humanitarian crisis, killing more people every day.

Jake Johnston / January 24, 2013