I.O.U.S.A. - America's Rising Debt and Foreign Policy

I watched a documentary last night called I.O.U.S.A – a sobering look at the ever-increasing US debt that is spiralling out of control.  What surprised me most was not the total amount of the debt but who actually owns a large portion of it … China (350 Billion).

Over 25% of the US debt is actually owned by foreign sources – one has to wonder what the implication will be for foreign policy in the US?  Now, I'm Canadian and certainly not an expert on world issues, but I'd be a bit concerned if a superpower like China had a sway in US politics – if anything happened, we would definitely feel it up here in the North …

What if China wanted it's way on a certain issue?

Given the amount of debt China owns it seems clear that they could hold some kind of influence in the US.  It's not just the debt, though, many companies do business in China and depend on their cheap imports back to the US … Walmart, anyone?

You can bet these companies wouldn't be too happy if their business in China was in any way negatively affected.

What if China wanted its money back?

They could theoretically demand payment of all the US Treasuries they own. If that happened, it would cause a financial crisis of epic proportion.  I have to wonder if even the threat of such a thing happening could make the US do something it normally wouldn't do.

One thing is clear, China isn't just a superpower from its shear size, it's a major power because they are net-savers, whereas we in the West are net spenders.  With all that money they save in China, they can invest in our stock markets and buy our goods.

What Can We Take Away From This?

We all know that debt makes people do funny things – it makes us stay in jobs we hate, it robs us of our time and makes us feel shame and guilt.

It's kind of ironic, but it looks like debt may do the same thing to countries.  Only time will tell, but I have a feeling that China may start to get its way more than not in the coming years. 

What Can the U.S. Do About It?

Simple – pay down that debt! But that's going to be a challenge with the war in Iraq, an economic recession and a rapidly aging population.  I think a major stumbling block is going to be our want-it-now attitude – we want things now and don't care how we pay for it.

This also goes for social programs and it may be difficult to push through spending cuts – let's just say, I'd hate to be a politician right now.

Obama is being sworn in for President tomorrow – he represents a new hope for the U.S. … but he certainly has his work cut out for him.

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