Deficits and Chinese Finance

A favorite argument of deficit hawks is that concerns over US financial integrity will drive away the foreign investment that finances part of the budget. I’ve argued before that though I agree running large deficits in perpetuity will have negative consequences, this is not a concern for the near-term, and what’s more, is overblown. Anyway, with that as context, I’m really glad Ezra Klein posted this today, along with two charts. I don’t want to steal his entire post, so definitely check it out, but these graphs are enlightening. First, Treasury debt holders:

As you can see, only 27.9 percent of US debt is financed by foreign investors. Hardly inconsequential, but definitely more of a garden hose than a fire hose. Now, as for the Chinese:

So, of that 27.9 percent of Treasury bonds held by foreign investors, only 24.07 percent of that is held by the Chinese, for a grand total of 6.71 percent of total debt. Again, not inconsequential, but a lot smaller than I think people realize. More directly to the point though, the issue isn’t so much the size of the debt, as much as it is that the strength of the US import economy is an integral feature of Chinese development strategy. Ok, now I’ve pretty much stolen Ezra’s entire post. Sorry.

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