03 inextricable links

8 INEXTRICABLE LINKS: WHY U.S. DEBT TO CHINA POSES NO THREAT TO NATIONAL SECURITY /luce.nt/

Photo courtesy of State.gov

Inextricable Links: Why U.S. Debt to China Poses No Threat to National Security

Lieutenant Colonel Joseph Francoeur

United States Air Force

cherish credit as a means of strength and security.1

--President George Washington, 1796

n August 2011, Admiral Michael G. Mullen, Chairman of the Joint Chiefs of Staff and the top military advisor to the President, said the federal debt was the biggest single threat to national security.2 Explaining that future interest payments will soon exceed total U.S. defense spending, Admiral Mullen and others suppose a direct relationship

between debt service and a reduction in national security. Others see American security diminishing due to $1.3 trillion in debt currently held by the Peoples Republic of China.3 This philosophy holds that state-on-state balances of power tilt toward China due to U.S. reliance on foreign debt investment, resulting in a serious risk to national security.4 Most citizens, government experts, and senior U.S. military leaders agree that this enduring trend of overspending and debt does weaken the American economy. However,

1 The opinions, conclusions, and recommendations expressed or implied within /luce.nt/ are those of the contributors and do not necessarily reflect the views of the Naval War College, the Department of the Navy, the Department of Defense or any other branch or agency of the U.S. Government.

1I


the impact of debt on national security is far less certain. While the discussion of military size and strength is often interchangeable with the state of national security in debate, they are not necessarily synonymous. More specifically, China, as a near-peer military competitor, customer, patron, and debt-owner, presents an interesting study for military leaders considering Admiral Mullens strong warning. While increasing American debt levels and Chinese liability ownership provide for interesting political debate, the complex web of economic interaction between the two countries offers a more comprehensive view of the relationship. Given the intricate economic relationship between the two countries, American debt to China weakens but does not significantly diminish national security.

As China is Americas largest foreign creditor, studying the national security implications of the debt is critical. Miscalculation favoring a view that Chinas financial position as a lender is somehow a zero sum game where they are dominant and the U.S. is weak is far too simple and unsophisticated for a realistic national security discussion. Therefore, senior military leaders must understand the magnitude of U.S. Government (USG) liabilities and three dimensions which have a disproportionately large impact on national security. The first area relating to national security is the debate over whether American decision-makers are subject to coercion or compulsion to act in a particular manner due to Chinas ownership of American debt. This discussion relates our nations ability to ensure security by sustaining influence and freedom-of-action in pursuit of American interest. A second considers Chinas ownership of U.S. debt, and whether our economy and policy interests are subject to manipulation. Finally, the third dimension examines the cost of our liabilities and the potential effect upon national security due to consequences of reductions in defense spending.

The Debt

The question of debt and national security rests in three broad areas and is not unlike threats familiar to the average consumer. First, the size of debt relative to the total economy allows us to understand the magnitude and expense of the liability. Understanding debt-to-income ratios, common to consumer loans, helps illustrate why lenders must prevent over-borrowing which creates payments in excess of what the customer can afford as well as additional risk of default. Second, senior leaders must understand that interest rates and costs can rise and fall as new debt is sold daily at varying prices (yields). Average consumers can grasp the implications of borrowing money on a mortgage at attractive rates only to see them rise unexpectedlyperhaps to a point where the loan becomes unaffordable. These variables make the decision to borrow and spend a great risk for both the lender and borrower.

The third concern relates to the effect of influence and coercion between the creditor and debtora bit more difficult to relate to the consumer experience. Unlike a consumer who borrows from a domestically regulated lending institution, the U.S. sells debt to nations which have different interests and world-views. A consumer borrowing to purchase a home does not have to adapt to a lenders political views or interests. While this may not be the case on the national-debt level either, the discussion highlights a common concern over non-domestic liabilities.

U.S. public debt is currently $16 trillion in comparison with national Gross Domestic Product (GDP) which hovers at $15 trillion.5 Interest payments on the debt for fiscal year 2011 was just over $225 billionmore than the USG spends on general and education expenses combined. Loosely tying this to a consumer debt-to-income ratio, the government sits at 45 percent debt-payment to revenue.6 Worse, the USG will spend nearly $1.1 trillion more than it earns this year with deficit projections continuing through 2022.7


Ownership of USG debt is both domestic and international. Domestically, state and local governments, private investors, and the Federal Reserve own approximately 54 percent of USG liabilities. International investors, owning the remaining 46 percent, are led by the countries of

Illustration 1 Source: Federal Reserve, Flow of Funds Accounts of the United States, 2011, repr. GAO, accessed 30 December 2012, http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html.

Countries with Largest Holdings of Treasury Securities (As of June 2011)

Illustration 2 Source: Department of Treasury, et al. Report on Foreign Portfolio Holdings of U.S. Securities as of June 30, 2011, repr. GAO, accessed 30 December 2012, http://www.gao.gov/special.pubs/longterm/debt/ownership.html.


China, Japan, and Brazil.8 Putting this further into perspective, China owns approximately 8 percent of U.S. debt with Japan at just over 5 percent (see Illustrations 1 and 2). Given the size of this foreign liability, issues of influence become a common source of concern for U.S. decision-makers.

U.S. Policy Independence

Foreign ownership of American debt can help conjure up scenarios where the U.S. might be hesitant to counter a creditors interests in favor of the financial relationship. In this situation, the U.S. might be reticent to counter Chinas efforts for fear of a mass sale of USG debt or unwillingness to purchase more. While the future possibility exists, the U.S. has shown no signs of reluctance to act contrary to the interests of China. In Libya and Syria, working with others, the U.S. has stood against China which had been advocating for the interests of sovereignty, noninterference, and stability. Opposing U.S. efforts until the final U.N. vote, Chinas abstention did clear the way for coalition action in Libya.9 While it remains to be seen what will occur in Syria, U.S. policy still appears to remain independent of Chinese interests.10

Another example of U.S. policy independence can be drawn from competing Sino-American interests in Sudan. U.S. policy objectives in Sudan support human rights and ultimately the creation of South Sudan while the Chinese, with significant oil and investment interests at stake, sought security, and stability through unity.11 Working in opposition to Chinese interests, the U.S. sought and found agreement on the 2005 Comprehensive Peace Agreement, 2011 cease-fire and subsequent South Sudanese independence.12 Despite fundamental Chinese interests in the region, the U.S. stood in clear opposition, bolstering American national values and policy.

Vital Chinese interests are also in competition with the U.S. over Taiwan and the Senkaku Islands. Taiwan, long an irritant to Sino-American relations, continues to enjoy considerable and increasing support from the USG despite Chinese objections. Since the debt-crisis began in 2008, USG arms sales to Taiwan have sharply risen from $608 million to over $1.2 billion in 2011.13 The territorial disputes over the Senkaku Islands represent significant issues of sovereignty, sea and energy resources for the Chinese. While the U.S. position is not aggressively in favor of Japan, Article 5 of the Japanese-American Treaty of Mutual Cooperation and Security remains in effect providing a clear message to China and furthering the notion of U.S. national security independence.14

An argument can be made that U.S. policy independence is at risk regionally due to the combination of U.S. debt to Japan and China. Totaling nearly $2.2 trillion, near evenly split at $1.1 trillion each, the U.S. could potentially be influenced by both nations; default to the reason of one, or simply remain beholden to neither.15 While certainly a concern, the combination of Japans inward focus due to domestic economic problems and the consistent demonstration of U.S. policy independence with China indicate that the risk is currently low. The demonstration of independence represents one key element of the argument, but questions still remain over American vulnerability to economic manipulation due to foreign liabilities.

U.S. Debt and Economic Manipulation

In judging American vulnerability to economic manipulation, it is necessary to analyze Chinas interaction with the American economy as a customer, patron, and owner of debt. J. Paul Getty once said, If you owe the bank $100, thats your problem. If you owe the bank $100 million, thats the banks problem.16 When consumers sign loan documents and borrow money from a bank, they agree to contractual obligations with some risk to both parties. Obligations include the rate of interest and methods of payment, as well as other fine print requirements. The borrower confronts risk in two


predominant ways. First, the risk of the debt burden in terms of cost relative to revenue. This topic will receive further attention later. A second risk centers on the potential for changes in the equation that can increase the cost or make additional credit difficult to secure. Risks include rate increases and additional lending restrictions. Another risk exists in the realm of nation-to-nation liability. Here, some hold that a debtor country might be subject to a crediting nations dominance. Some, like Karl Rusnak of Economy in Crisis, opine that our debt leaves us vulnerable to exploitation by a country such as China.17 This argument presupposes that Americas largest creditor could disrupt the economy through various instruments of manipulation. While theoretically possible, the threat diminishes with further analysis of Sino-American economic interdependence and the fact that China only owns 8 percent of U.S. liabilities.18

This interdependent relationship starts with U.S. trade with China at just over $539 billion in 2011. As the worlds largest importer of Chinese goods, the American consumer has been instrumental to the growth, wealth and prosperity within that country.19 With a GDP of $7.1 trillion, growing at over 9 percent per year, China depends heavily on U.S. consumers, low cost capital, and the satisfaction of its 1.3 billion people.20 In any attempt to influence, coerce, or exert power over the American economy, the Chinese run the risk of damaging their own.

One risk involves U.S. imports of Chinese goods, which currently total over $399 billion per year.21 As Chinas largest trading partner, the U.S. consumers role in prosperity exacerbates low-levels of Chinese domestic demand for goods and high rates of saving. Chinas labor force of over 795 million workers earn only $8,400 per year, on average, ranking in the bottom third of nations. With poverty-levels of 13.4 percent and a low unemployment of rate 6.5 percent, Chinas ability to increase domestic demand and consumption seems unlikely in the near term.22 Therefore, Chinas current model requires growth and strong international economies with little tolerance for significant reductions in American consumption. Illustrating this fact was the steep drop in Chinese GDP from 14 percent in 2008 to 9.2 percent in 2009 following the U.S. recession.23 In characterizing this downturn as both massive and ferocious, experts point to the clear link between U.S. prosperity and a thriving Chinese economy.24

China must also be attentive to the relative value of their currency. Experts agree that Chinas renminbi (RMB) is undervalued to the U.S. dollar (USD) by approximately 27 percent.25 By suppressing the value, China is able to enjoy the effective subsidization of its goods in American markets. Also aiding the cause is a consistent trade imbalance which favors China by an average of $290 billion per year. This imbalance means that cheaper domestic products are supplanting more expensive U.S. goods within Chinese markets.26 While the full implications of this issue are not germane to this discussion, the global downturn in 2008 offers a cautionary tale for the Chinese. With the U.S. economy in trouble, national borrowing on the rise and consumer spending down, the value of the RMB began to increase relative to the USD, over 8 percent in just one year.27 This phenomenon is a concern for China as a cheaper USD, relative to the RMB, results in more expensive Chinese exports and cheaper U.S. products. Both are risky and costly for China.

Fears of disruptions resulting from China dumping the debt are also unfounded as experts agree that three other scenarios are more likely. First, the Federal Reserve and other creditors are capable of purchasing the $1.2 trillion in Chinese debt, making any sudden sell-off or concerns for finding further credit a short-term problem. Second, rising yields in the wake of a sharp reduction in Chinese ownership would likely be short-lived and only modestly more expensive. Third, and perhaps most important, are the follow-on effects of such Chinese behavior. A recent Pentagon study holds that the Chinese would risk their reputation as a reliable and respected economic partnera perilous long-term proposition.28


The Japanese-American debt relationship also highlights a difference in how we view security, economics, and manipulation. Despite the fact that the U.S. debt holdings by China and Japan are about the same, American security is rarely thought to be at risk to Japanese influence or manipulation.29 While Japan shares many similarities with America in terms of democratic values and social freedoms, they also hold independent national interests which sometimes differ from the U.S. Instead of an opportunity for economic manipulation, Japan views American debt as a means toward a more stable yen, hedging against the greater threat of a slowing Japanese economy.30 This view may be a better way to consider similar Sino-American interaction.

The sum of these economic realities leads to the logical conclusion that Sino-American interdependency makes economic manipulation a lesser threat to U.S. security. This raw theory of mutual assured destruction between the lender and borrower illustrates the Sino-American construct. In the end, the concerns of Mr. Rusnak and others fail to reconcile the risk of the lender in this relationship. Considering only the leverage of the debtor, previous arguments illustrate that China cannot significantly meddle to the detriment of the U.S. economy because of inextricable links.31 The conclusion here is that U.S. security is not significantly vulnerable since the second- and third-order effects of economic manipulation create great risk for China. However, other more basic risks do exist, including burdens common to the structural debt.

Debt: Tough Choices and National Security

The totality of U.S. debt is certainly a source of vulnerability and has the potential to diminish the security of the nation. This segment of debate centers on the notion that an additional dollar spent servicing debt would reduce resources for defense. Further, this resulting decline in spending would have to be somehow offset by Chinese advantage for national security to be in jeopardy. In this vein, it is important to grasp the magnitude of the potential budgetary pressure of the debt and defense spending. Additionally, assumptions of defense spending cuts must balance against an assessment of Chinese military budgets which could narrow the American advantage.

In 2011, the cost of the public debt was $225 billion amounting to 6.4 percent of total federal outlays.32 By the year 2022, net interest on debt, by 2013 projections, will be over $850 billion, representing 15 percent of federal outlays.33 With a cost of borrowing at just over 3 percent, using Administration estimates, just one additional point could drive the deficit higher by $13 billion and result in an extra $1 trillion in interest over the next ten years.34 The problem gets worse with the USG estimating deficits of approximately $600 billion per year through 2022.35 In short, resources are tight, and the pressure of the debt is mounting for the future.

The defense budget for 2013 authorizes $633.3 billion in spending to include more than $88 billion in overseas contingency expenses. By comparison, the 2012 budget of $645 billion was about 2 percent greater, mainly due to a $27 billion difference in the cost of overseas commitments.36 As a matter of GDP, the 2012 defense budget represents just over 4 percent of national economic output. Our closest near-peer competitor, China continues to maintain a consistent 2 percent defense expenditure relative to its GDP and spent just over $143 billion in 2011--$500 billion less than the U.S.37 In terms of central government expenditures on defense, the Chinese commit just over 16 percent in comparison to the U.S. at 18 percent.38

Illustrating concerns about the debt and diminishing national defense spending can be found in the recent sequestration debate. Within the greater fiscal cliff discussion, the Budget Control Act of 2011 seeks to institute broad cuts across the USG. The impact on the Department of Defense (DOD)


would be $500 billion over a ten year period, effectively reducing spending by $50 billion per year. While sequestration is draconian in its manner of forcing cuts, the real question is whether it would have significant national security implications. Ignoring the manner of cuts and just examining the totals, a $97 billion per year reduction would still leave a DOD budget in excess of 2005 levels (Figure 1).39

Figure 1

Source: CATO Institute, Department of Defense, http://www.downsizinggovernment.org/defense.

Carefully choosing his words when discussing the threat of sequestration in March, 2012, Secretary of Defense Leon E. Panetta stayed clear of concerns over national security simply stating that such cuts threaten strategy implementation. Going further into the issue, General Martin E. Dempsey, Chairman of the Joint Chiefs of Staff, cautions that cuts may be absorbable given time and the flexibility to reactsomething that sequestration does not afford. He also stays away from the comparison of such cuts to a diminishment of national security.40 While debate continues, the Chinese by comparison will continue to spend $390 billion less than the U.S. on defense.41

Others weigh in with concern over the militarys reduction to a so-called, hollow force. This argument suggests that reductions might create a military, mission-ready in appearance, but unable to meet the requirements of national security due to insufficient supplies, training, and equipment necessary for wartime commitments.42 The origins of this discussion go back to the 1970s at the end of the Vietnam War. While defense spending was one aspect of the problem, analysis shows personnel issues (including pay and benefits), low popular support for the military, old equipment and poor maintenance, morale, and recruiting were also problems. While some modern leaders warn of its return, many like General Joseph Dunford, Lieutenant General Richard Mills, and the Chairman, General Martin Dempsey, believe that the risk is manageable despite cutbacks. Current and future year personnel policies, compensation, and steady procurement mitigate the risk to national security (Figure 2).43


Figure 2

Source: Andrew Feikert and Stephen Daggett, A Historical Perspective on Hollow Forces, Congressional

Research Service, 31 January 2012, http://www.fas.org/sgp/crs/natsec/R42334.pdf: 18.

In countering the argument, some might refer to sharp declines in defense spending as reason enough for national security concern. With DOD reductions translating to fewer sustainment, recapitalization and modernization resources, concern exists over emerging threats world-wide. Those holding this view see U.S. national security as substantially dependent upon the size and force of the military. While the U.S. military is the most capable force in the world, American security is not just a function of weaponry and might; thus, this argument overlooks links with economic, diplomatic and social influence. Discussion of U.S. sticky power, as described by Walter Russell in Power, Terror, Peace and War: Americas Grand Strategy in a World at Risk, helps demonstrate how Sino-American economic interdependence makes war less likely because peace is more profitable and lucrative. Sweet power also provides a blanket of security with Chinese and American citizens often finding connections.44 As Chinas social networking, Internet usage and broadband penetration rates climb sharply, more-common connections will emerge.45

Conclusion

Admiral Mullens comments on the threats of debt clearly illustrate U.S. vulnerability. Chinas ownership of U.S. debt, small in comparison to the total liability, produces some exposure to risk, but there are limits. American pursuits of national interest are not appreciably different even when they run counter to that of the Chinese. Likewise, the argument that America is somehow susceptible to market manipulation which could result in higher borrowing rates and lower value currency, are overblown. The U.S. and China share economic prosperity through opportunity. Therefore, deterrence is born of an economic, mutually assured destruction which significantly reduces risk to American security.

Finally, anxiety over reductions in American defense spending are perhaps most realistic and concerning when considering long-term security. The variable nature of yields, ongoing deficits and higher debt will increase budgetary pressure on defense, bolstering Admiral Mullens broader view of national security. Despite the growing concerns, decreasing defense spending levels are not necessarily


synonymous with diminishing national security, or a hollow force as China continues to spend far less than the United States. Additionally, non-military forms of national power help solidify American security, further reducing concerns over declines in military spending. All of these factors require the careful analysis of senior military leaders forging strategies which shore up true U.S. vulnerabilities. While the debt provides considerable concern overall, Chinas ownership does not significantly diminish American national security.

1 George Washington, Farewell Address, 1796, repr. Robert B. Zoellick, Economics & Security in American Foreign Policy: Back to the Future?, Foreign Policy, November 2012, accessed 29 December 2012. http://www.foreignpolicy.com/articles/2012/10/08/the_currency_of_power. 2 Admiral Mullen was not alone in offering this general assessment. Others such as Henry Kissinger, Paul Volcker, James Baker, and Madeleine Albright signed a letter offering the same view. Jim Garamone, Mullen: DoD Must Help Solve Federal Debt Crisis, American Forces Press Service, 28 April 2011, accessed 29 December 2012, http://www.jcs.mil/newsarticle.aspx?id=594. 3 Department of the Treasury, et al, Report on Foreign Portfolio Holdings of U.S. Securities as of June 30, 2011, repr., Government Accounting Office, Ownership of Federal Debt, accessed 29 December 2012, http://www.gao.gov/special.pubs/longterm/debt/ownership.html. 4 Keith B. Richburg, On Eve of Obama Visit, an Uneasy Co-Dependency Between U.S. and China, Washington Post, 16 November 2009, accessed December, 2012, http://www.washingtonpost.com/wp-dyn/content/article/2009/11/15/AR2009111502435.html?sid=ST2009111503225. 5 Department of the Treasury, repr., Government Accounting Office, Federal Debt Basics, accessed 29 December 2012, http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html. 6 Based upon $1.09 billion in deficit and $2.449 billion in revenue, 2012. Congressional Budget Office, Choices for Deficit Reduction, 8 November 2012, accessed 29 December 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/43692-DeficitReduction_print.pdf. 7 Congressional Budget Office, Choices for Deficit Reduction, 8 November 2012, accessed 29 December 2012, http://www.cbo.gov/publication/43692. 8 China owns $1.3 trillion with Japan maintaining $882 billion and Brazil at $216 billion. Most U.S. debt to China is owned by the PRC government. Federal Reserve, Flow of Funds Accounts of the United States, 2011, repr. GAO, accessed 30 December 2012, http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html. 9 Libya: U.N. Backs Action Against Colonel Gaddafi, BBC News: Africa, 18 Mar 2011, accessed 31 Dec 2012, http://www.bbc.co.uk/news/world-africa-12781009. 10 Amiel Unger, Analysis: Why Did Russia and China Veto UN Resolution in Syria?, Israel National News, 4 Feb 12, accessed 31 Dec 2012, http://www.israelnationalnews.com/News/News.aspx/152414#.UPGC_uRZXSg. 11 Through independence, South Sudan owns 85% of the oil. With Khartoums ownership interests relegated to the pipeline and 15%, the Chinese lost a great deal of influence and control of nearly one-third of their oil supply overnight. Nile Bowie, Carnage & Crisis Aversion in Sudan,Global Research, 8 May 12, accessed January 2013, http://www.globalresearch.ca/carnage-crisis-aversion-in-the-sudan/30757. 12U.S. State Dept, U.S. Support to Peace and Security in Sudan, 8 Jul 11, accessed January 2013, http://www.humanrights.gov/2011/07/11/fact-sheet-u-s-support-to-peace-and-security-in-south-sudan/.


13 Arms Control Association, U.S. Conventional Arms Sales to China, October 2012, accessed January 2013, http://www.armscontrol.org/factsheets/taiwanarms. 14 The Senkaku Islands have been claimed by Japan, China and Taiwan however, Japan has controlled them since 1895. September 11, 2011, the U.S. State Department, in discussing the controversy, confirms American commitment to the treaty provisions of Article 5 relating to U.S. protection of Japan. Dillon Zhou, Senkaku Islands Dispute: Before a War with China and Japan Starts, US Must Decide Where it Stands, World-Asia, September, 2012, accessed January 2013, http://www.policymic.com/articles/14650/senkaku-islands-dispute-before-a-war-with-china-and-japan-sparks-us-must-decide-where-it-stands. 15 As of December, 2011, Japan held $1.058 billion in U.S. debt versus China at $1.151.9 billion. Justin Murray and Marc Labonte,Foreign Holdings of Federal Debt, 3 July 12, accessed December 2012, http://www.fas.org/sgp/crs/misc/RS22331.pdf. 16 Washington Times, China Holds More US Debt than Indicated, Washington Times, 2 March 10, accessed December 2012, http://www.washingtontimes.com/news/2010/mar/2/chinas-debt-to-us-treasury-more-than-indicated/. 17 Mr. Rusnak and others believe that our nation is nave to the threat of Chinese debt ownership. In considering the consequence of a so-called dumping of U.S. debt in the markets, Rusnak points out that the U.S. would be simultaneously faced with a search for domestic lenders and high interest rates. Karl Rusnak, The Consequences of Chinese-held Debt, Economy in Crisis, 24 May 2012, accessed December 2012, http://economyincrisis.org/content/what-if-china-dumps-our-debt. 18 Department of the Treasury, repr., Government Accounting Office, Federal Debt Basics, accessed 29 December 2012, http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html. 19 Office of the US Trade Representative, China, accessed January 2013, http://www.ustr.gov/countries-regions/china. 20 CIA Factbook, China, accessed January 2013, https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html. 21 21% of Chinese exports are to the U.S. Office of the US Trade Representative, China, accessed January 2013, http://www.ustr.gov/countries-regions/china. 22 Ibid. 23 World Bank, GDP Growth Annual, accessed January 2013, http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG. 24 John Wong, Chinas Economy 2008 and Outlook 2009: Crisis of a Sharp Slowdown, East Asian Institute, 24 September 2008, accessed December 2012, http://www.eai.nus.edu.sg/BB422.pdf. 25 Daniel J. Ikenson, Currency Controversy: Surplus of Politics, Deficit of Leadership, Cato Institute, 31 May 2006, accessed January 2013, http://www.cato.org/publications/free-trade-bulletin/currency-controversy-surplus-politics-deficit-leadership. 26 This argument/data does not consider the added effects of Chinese import restrictions which exacerbate the situation. US Census Bureau, Trade in Goods with China, 2012, accessed January 2013, http://www.census.gov/foreign-trade/balance/c5700.html. 27 John Wong, Chinas Economy 2008 and Outlook 2009: Crisis of a Sharp Slowdown, East Asian Institute, 24 September 2008, accessed January 2013, http://www.eai.nus.edu.sg/BB422.pdf, 8. 28 Tony Capaccio and Daniel Kruger, Chinas Debt Holdings Arent Threat, Pentagon Says, Bloomberg News, 10 September 2012, accessed January 2013, http://www.bloomberg.com/news/2012-09-11/china-s-u-s-debt-holdings-aren-t-threat-pentagon-says.html. 29 Justin Murray and Marc Labonte,Foreign Holdings of Federal Debt, 3 July 12, accessed 29 December 2012, http://www.fas.org/sgp/crs/misc/RS22331.pdf.


30 Wes Goodman and Daniel Kruger, Abe Aids Bernanke as Japan Seen Buying Foreign Debt, Bloomberg, 14 January 2013, accessed January 2013, http://www.bloomberg.com/news/2013-01-13/abe-aids-bernanke-as-japan-seen-buying-558-billion-foreign-debt.html. 31 In illustrating a grand strategy of restraint, Mr. Harvey and others, point out that a global economy allows for alternatives if disruptions are encountered. Such disruptions might include a scenario where U.S. consumer demand decreases and the Chinese find new markets in Europe or Africa. While this argument holds merit, the facts of the disruptions caused by the 2008 recessionled by the U.S. and affecting the worldshow that the alternatives are limited. Harvey Sapolsky, et al., Restraining Order: For Strategic Modesty, World Affairs Institute, Fall, 2009, (Heldref Publications, 2009) repr. USNWC: 5. www.worldaffairsjournal.org. 32 OMB, Budget of the United States Government for Fiscal Year 2013Historical Tables repr. GAO, Budget and Federal Debt, accessed 30 December 2012, accessed January 2013, http://www.gao.gov/special.pubs/longterm/debt/budgetdebt.html. 33 Ibid, Summary Tables. 34Binyamin Appelbaum, A U.S. Boon in Low-cost Borrowing, New York Times, 27 February 2012, accessed December 2012, http://www.nytimes.com/2012/02/28/business/era-of-low-cost-borrowing-benefits-federal-government.html. 35 OMB, The Budget, accessed January 2013, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/tables.pdf. 36 Defense Industry Daily, Staff, DoD Budget: Fiscal 2013-17 Highlights, Numbers & Unfolding Events, 2 January 2013, accessed January 2013, http://www.defenseindustrydaily.com/department-defense-2013-budget-07304/. 37 Critics may argue that Chinese defense spending is in excess of the reported $143 billion figure due to spending in areas related to but not reported. While this may be true, the U.S. number of $633 billion is likely under-estimated at well once you count activities related to the national defense budgeted under the CIA and Dept of Energytoo name two. Regardless, these numbers are the best assessment available for purposes of comparison. Stockholm International Peace Research Institute, Top 15 in Military Expenditures, accessed January 2013, http://www.sipri.org/research/armaments/milex/resultoutput/milex_15/the-15-countries-with-the-highest-military-expenditure-in-2011-table/view. 38 The last record of Chinese central government spending percentage is 2008. This statement is based upon a comparison of the U.S. and China that same year. World Bank, Military Expenditures: % of GDP and % Central Government Spending, accessed January 2013, http://data.worldbank.org/indicator/MS.MIL.XPND.ZS/countries. 39 $97 billion per year based upon: $47 billion per year under cuts implemented by then, Secretary of Defense Gates, plus $50 billion per year under sequestration. See Figure 1, CATO Institute, Department of Defense, accessed January 2013, http://www.downsizinggovernment.org/defense. 40 DOD, Press Briefing: Sec Panetta and Gen Dempsey, 10 January 2013, accessed January 2013, http://www.defense.gov/transcripts/transcript.aspx?transcriptid=5173. 41China has spent approximately the equivalent of 2% of GDP on defense over the past decade. Assuming consistent levels continue, it would take decades for Chinese spending to achieve parity with the US, even with sequestration. World Bank, Military Expenditures: % of GDP and % Central Government Spending, accessed January 2013, http://data.worldbank.org/indicator/MS.MIL.XPND.ZS/countries. 42 Andrew Feikert and Stephen Daggett, A Historical Perspective on Hollow Forces, Congressional Research Service, 31 Jan 12, http://www.fas.org/sgp/crs/natsec/R42334.pdf: 2-4.


43The figures show that even a $97 billion reduction ($47 billion in cuts implemented under Secretary Gates plus $50 billion in sequestration) procurement will exceed 2005 levels in 2013 dollars. Ibid, 14-15. 44 Walter Russell Mead, Power, Terror, Peace and War: Americas Grand Strategy in a World at Risk, (New York: Vintage Books, 2004, 2005): 31-40. 45 This is argument assumes a degree of openness and access for the average Chinese citizen. The extent of internet freedom and access to information is questionable in China. China Internet Watch, China Internet Statistics White Paper, October 2012, accessed December 2012, http://www.chinainternetwatch.com/whitepaper/china-internet-statistics/.

03 inextricable links

Documents

state of national security

national security implications

impact of debt

debt service

federal debt

american security diminishing

american debt levels

foreign debt investment