Some Republicans have long tempted to characterize Democrats as fiscally irresponsible big spenders – at times with merit.  However, the Republicans’ budget plan now endangers our economy and our security.

Over the past 2 ½ years, the Bush administration and the Republican Congress have pursued fiscal policies that have resulted in a colossal increase in the federal debt.  Increased interest payments mean higher taxes on Americans next year and every year thereafter.

This reckless increase in federal debt has exposed another troubling aspect of the administration’s budget plan, passed by a Republican House and Senate:  Asian countries are purchasing our debt in record amounts, and China has registered the most rapid increase.  These developments not only adversely affect our economy, they also leave our country susceptible to a potential national security threat.

According to the Treasury Department, major foreign holdings of U.S. Treasury securities total $1.35 trillion.  Over the first seven months of 2003, mainland China and Hong Kong accumulated $177 billion of U.S. debt.

Currently, China is the world’s second-largest buyer of our debt, exceeded only by Japan.  Furthermore, China’s purchases of U.S. government securities rose 20 percent over the first half of this year and have more than doubled since 2001.

It is a dangerous situation when the administration funds the federal government in part by selling our debt to the Chinese.  The Congressional Budget Office (CBO) has estimated that the federal government accumulated a $374 billion deficit in fiscal 2003, not including the President’s $87 billion request for Iraq.

Foreign investment in the United States is financing the U.S. budget deficit and the war in Iraq.  We need to borrow approximately $1.5 billion a day from foreign investors to meet these deficits.  Increasingly, foreign investors, not U.S. residents, will be beneficiaries of the interest paid by us, our children, and our grandchildren.

The high level of foreign holdings of U.S. securities could have a debilitating impact on our economy and foreign policy.  How would our economy respond if China threatened to sell large volumes of U.S. Treasury securities?  This action could easily fuel higher inflation and put pressure on the Federal Reserve to increase interest rates, putting our economy at risk of a large-scale recession.

The United States does not always see eye to eye with Beijing on foreign affairs.  The mere threat by China to sell U.S. debt could reduce our negotiating position on long-standing issues of disagreement such as national security and trade.  The United States should not be put on the defensive when conflicts arise with China simply because the Chinese government can hold the U.S. dollar hostage.

Chinese officials are purchasing U.S. Treasury securities in an attempt to keep the value of their currency, the yuan, artificially low.  The yuan has been pegged to the U.S. dollar for almost 10 years, despite record growth in the Chinese economy.  Such growth should have increased the value of the yuan if it were a free-floating currency. 

Economists estimate China is undervaluing its currency by as much as 40 percent.  By purchasing U.S. debt, China can manufacture products that cost 40 percent less to make than they do in the United States.  This currency manipulation has contributed to the loss of millions of manufacturing jobs in the United States.

The Republican borrowing program, unless it is quickly reversed, will devastate our economy and diminish our role in the world.  We cannot be the world’s leading economic and military power if our government’s financing depends on money from foreign countries, many of which oppose our policies.

A former official of China’s central bank, now a private economist, recently told The Washington Post:  “The U.S. dollar is now at the mercy of Asian governments.”  The only way to get this problem under control is to stop deficit spending.

Interest payments on the national debt will soon surpass all domestic discretionary spending, including defense, health care, education and infrastructure.  Unlike those expenditures, interest is a tax on the American people that cannot be repealed.

The “Blue Dog” Democrats proposed a plan that would have reversed this catastrophic borrowing but it was defeated on a largely party-line vote.  We will continue this fight, but to succeed we will need the help of citizens outside Congress.