Lately Mitt Romney has been characterizing his approach to new spending as wanting to limit it to things that are really worth borrowing from China to do. I wonder if he realizes that China’s net holdings of U. S. debt has decreased by $260 billion over the last six months. The U. S. trade deficit with China was about $270 billion. That means that China has sold off a full year’s worth of trade imbalance in just the last six months.
We’re not borrowing from China any more. That’s so last decade.
We don’t borrow money from the Chinese to fund government spending.
When China sells goods and services, they get paid in dollars which are deposited in China’s account at the Department of Treasury. They can leave the money in the checking account, buy U.S. assets with it (Congress said no) or put it in a savings account. The savings account consists of Treasurys and pays them about 2%.
It’s an asset swap, dollars for bonds. The money is always available to the Chinese and the U.S. doesn’t have to find some way to “pay it back.”