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The 4th of July has always been one of my favorite holidays. Not only is it a bright, cheerful celebration with fireworks and such, but it marks the beginning of American independence. It didn’t come easy. The men who signed that document knew they were signing their death warrant if they were captured, but, after a long, difficult struggle, we emerged as a sovereign nation.
We also emerged as an exceptional nation. We went on to form a federal republic with what today is the world’s oldest written constitution that remains in effect. George Washington refused to be either king or president for life. When John Adams, our second president, was defeated by Thomas Jefferson in the election of 1800, he left office on schedule and there was a peaceful, if somewhat disorderly, transfer of power. We did have a rather unpleasant episode from 1861 to 1865, but we pulled ourselves back together after spending four years killing each other and went on to become stronger than ever, stronger than anything those men back in 1776 could have imagined.
We established a nation with true religious freedom. We established a country where people can call our government officials scoundrels in public. We can protest without getting gunned down by security forces. We have enjoyed more than two centuries of freedom and have become a rich nation in which the benefits of our national prosperity have been widely distributed.
Listening to fireworks crackling about my neighborhood on the 4th, and the weekend preceding it, a thought came to me. I wonder if we will still be able to celebrate the 4th after the Chinese foreclose on us?
We have run up a huge national debt, over $14 trillion. A big chunk of this came since the current administration took office. Barack Obama, in less than three years in the White House, has run up more debt than George W. Bush, our previous deficit champion, did in his entire two terms. There’s no telling how far he would have gone if Republicans had not won control of the House last year, and then refused to meekly approve an increase in our debt ceiling this year.
Some other countries are also carrying a huge debt burden—Japan for instance. In Japan’s case, its debt is held by the Japanese people. In our case, nearly half our debt is held by foreigners and the Chinese government is the largest holders of American sovereign debt. At the end of 2010, we owed the Chinese government $1.16 trillion. We owe the Russian government $151 billion.
In reality, China is a long way from owning our rear ends, but the Chinese could cause a serious problem for us if they decided to dump all their American debt holdings at once. The greatest danger is from the magnitude of the debt, itself. China, and other foreigners, have purchased American sovereign debt because it is a safe investment. This won't continue to be true if we keep accumulating debt at the rate of the last few years. At some point, the bond market is going to start getting nervous about our ability to repay what we owe and interest rates will begin climbing. We could even find ourselves in the same (sinking) boat as Greece.
This is why it is imperative that Congress must not pass an agreement to raise the debt ceiling that does not also contain a plan to make meaningful spending cuts. Republicans must also hold their ground and not let President Obama get away with playing games with tax hikes. The president talks a good “soak the rich” game, but one of his proposals, changing the way businesses account for inventory, could raise tax bills for small businesses as well as the big boys.
More tax revenue is not the answer. We must get our spending under control, and we must take the first serious steps now.