The US Senate on Wednesday voted to require regular White House reports on the financial and national security risks posed by debt held by China and other foreign governments.
The move came as lawmakers grow nervous about the US$13 trillion US debt in the aftermath of a European debt crisis, and record US budget deficits and the debt become major issues ahead of the November congressional elections.
The Senate approved Republican Senator John Cornyn’s amendment requiring quarterly reports from the president. Republicans, who hope to win control of Congress, accuse US President Barack Obama of sinking the nation deeper into debt with wasteful spending.
The Wall Street Journal reported yesterday that Cornyn’s amendment warns Beijing’s sizable holdings of US debt “could give China a tool with which China can try to manipulate domestic and foreign policymaking of the United States, including the United States relationship with Taiwan.”
The Journal said US Treasury Department figures show China is currently the US’s largest creditor, holding 10 percent of the US$8.577 trillion in publicly held debt. Japan is No. 2, it said.
“It’s the worst kept secret in the world that our deficit spending is being financed by foreign investors who may not always have our nation’s best interests at heart,” the Journal quoted Cornyn as saying.
“Leaders in the Chinese military have threatened retaliation in exchange for the United States selling defensive weapons to the country of Taiwan,” Cornyn said.
At the same time, the Senate approved a milder version by Senate Finance Committee Chairman Max Baucus, a Democrat, that would require annual reports from the Treasury Department on the risks posed by foreign government holdings of US debt.
Unlike the Cornyn amendment, the Baucus amendment did not single out China.
Baucus argued that singling out China and other governments could roil financial markets and make countries reluctant to buy US debt.
“With America just beginning to recover from the financial crisis, we cannot risk our ability to finance the debt,” Baucus said. “We can’t risk it.”
The Senate brushed off those concerns and refused to set aside the Cornyn amendment, agreeing instead to include it and the Baucus amendment in a larger bill aimed at boosting the economy and extending jobless benefits for the long-term unemployed.
The Cornyn amendment would also require the Government Accountability Office to report on the risks of foreign-held US debt and recommend reductions in US spending if it determined that the risk was unsustainable.
The Senate is debating the economic package, which extends some expired business tax breaks and raises taxes on investment fund managers to offset some of the bill’s US$126 billion cost.
Democratic leaders are pushing to have the Senate complete work on the bill by sometime early next week.
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