Yo, Mitt, Borrowing Money From China Is Good for America, Not Bad
When you’re seeking a loan, do you spend a lot of time worrying about the moral probity of the lender? Or do you take the money and run?
Right. You get the best deal you can and bolt before the lender changes his mind.
The U.S. government operates much the same way. When it needs to borrow (which is basically all the time), it issues debt on the public markets to any legitimate investor who’s willing to buy it. There’s no test for political leanings and no quota for how much any one investor can purchase. And once investors buy treasury securities, they’re free to sell them to other investors on the open market or hold onto them until they mature.
Republican presidential nominee Mitt Romney, who made a fortune as a professional financier, apparently thinks this whole system is a bad idea. In his acceptance speech at the Republican National Convention, Romney singled out U.S. government debt held by China as an alarming sign of national decline. “Does the America we want borrow a trillion dollars from China?” Romney asked rhetorically, while ticking off ways he feels American prestige has suffered under President Obama.
Romney probably knows this, but there’s nothing wrong with the U.S. government borrowing from China, or from any other foreigner with money. “It’s a pretty good deal for the United States,” says Donald Boudreaux, an economics professor at George Mason University and author of the bookHypocrites and Half-Wits, which calls out dozens of popular myths about how the economy works. “Borrowing from China keeps interest rates lower than they would otherwise be and lowers the tax burden on Americans.”