Debt that United States Owes China – Essay Example
The paper "Debt that the United States Owes China" is a brilliant example of an essay on politics. One of the most component core values of America is the market Democracy that it offers. Democracy and Capitalism are two most critical key elements that drive the market. Capitalism is a spectacular form in which societies are created. Capitalism is based on market democracy in which consumer spending is a vital component of driving the economy of supply and demand. One of the reasons why the American economy thrives is due to the spending ability of the middle class in this country. Compared to other nations, American families, in contrast, are able to afford more products on a grand scale than most countries around the globe. However taking a flashback towards the rise of capitalism, one cannot refute the fact that the upper class in the 1900’s controlled the surplus of the products. In essence, the rich controlled the resources and used the working force of the upper and lower class. However, the upper class continued to reap the profits and used them for future investment. The whole essence of that was to improve the process of production that can not only facilitate the workforce but also enabled them to reach a higher level of efficiency. Stock prices have dropped sharply and both the NASDAQ and Dow-Jones have suffered. Scholars have insisted that the NASDAQ has lost more than 63 percent of its value since March 2000. In addition, individuals have lost about $5 trillion in the value of stocks traded on major U.S. exchanges. More than 400,000 workers have been laid off, which has drastically been detrimental to the economy.
The current recession that occurred internationally has forced the American economy to hinder. When the economy collapsed occurred, the majority of the banks failed to accumulated the loans they were obligated to receive from the customers. In the midst of this chaos, the banks failed to make any revenue and tightened the parameters in which loans can be the lender. However, the mid and small size businesses in this recessive environment have no build-up capital to initiate their venture. Thus, this poses a problem for a capitalistic economy that is so driven by regional economies. Since capitalism is so driven by the purchasing power of consumers, it is crippled when spending diminishes. The domino effect not only occurs at macro but also at a micro-level.
Since the recession, the US market has been under heavy scrutiny with the SEC and other commissions. The US public debt that is borrowed by the government through the Treasury consists of two essential components. The first component is the debt held by public companies and the other debt is held by into government agencies which consist of Treasury securities. Throughout history, the public debt has continued to increase as government spending as surpassed its deficits by the amount of $500 billion. The United States needs to borrow nearly $10 trillion over the next decade, including about $1.6 trillion in this current year. The question remains- will China still give the United States this money?
Currently, foreign ownership in the market is possessed by China. The largest single holder of US government debt is held by China as it holds almost 36% of all stocks. Throughout history, China has been extremely wary of foreign control as it has dramatically been exploited by other nations. Comprehensive research indicates that China’s economy has been spurted out of ashes and is one of the most developed nations that challenge the GDP production of America. Production and innovation have been a key component for China as it imports the majority of its goods. In addition, products in China are cheap and durable, which can pose a risk for other organizations.
Undoubtedly, China wants to gain leverage not only in the political sphere but also in the economic sphere. Gaining leverage will be highly beneficial for China as it can inject its products in the American economy. With its manufacturing services booming, it only makes sense that China’s assurance of lending is to penetrate the market dynamics that exist in American society. If China is able to capture the market segment in America, it can propel itself to be the world leader in manufacturing, services, and products.
With the debt that the United States owes, China, in essence, can sing the slogan that they “own” the American economy. In addition, the value of the dollar continues to struggle in the market. The Yen will continue to gain strength and give Chinese creditors a channel way to make a revenue of the interest payments. The Chinese government is still worried about the emergence of the American market as it borrowed so much money. In essence, the Chinese understand the value of the dollar and are trying to gain a competitive edge. The Chinese understand that America’s financial woes will continue to haunt them as the US government is facing lower income tax receipts and inflated deficits. Lending out the money will give China a huge advantage in reducing tariffs of exporting, gaining trade rights, and foreign relations. If China was to go in a war with any other nation, the United States would have no choice but to support them in their efforts financially. This puts China in a great advantage than the rest of the world.