The biggest issue facing the United States in the long term is our debt to the People’s Republic of China. Economic crises come and go, but debt lasts for forever and China has made it very clear that they have a long memory.

The United States owes the People’s Republic of China $739 billion dollars, which breaks down to each and every man, woman and child in America owing the Chinese government about $2,500 on top of our other debts. China took the job as America’s biggest lender from Japan last fall when George W. Bush and the Congress all voted to increase foreign debt to pay for the massive bank bailout. Unfortunately, this debt creates an economic, political and military crisis in the making that President Obama cannot shy away from.  

Debt is a common way of life in the United States. As a nation, Americans have one of the lowest household savings rates over the last 15 years. We only tuck away about 2 percent of home income a year compared to Chinese citizens who save about 20 percent of their annual income. Of course we have a government that reflects our values of overspending. Recently, the massive U.S. debt had Chinese Central Bank President Zhou Xiaochuan proposing to replace the dollar with a new ‘international currency’ to limit our nation’s global economic influence. But this is just the first salvo. The Chinese government has shown that it can be a pretty aggressive lender and have no trouble flexing its muscles with nations that are foolish enough to get into too much debt with them. A prime example of this can be seen today in Africa.

Over the last decade China has almost doubled trade and loans to most of Sub-Saharan Africa, giving nation after nation “soft loans” with generous terms. But it’s not always money that’s asked for in return. Recently, South Africa, which has heavy financial debt and investments from China, refused to let the Dali Lama attend a peace conference in Johannesburg. Why? Because the Chinese government resents the Dali Lama’s peace efforts in Tibet and pulled some puppet strings. If a nation that is home to Nelson Mandela can be strong-armed into rejecting the Dali Lama over a few billion in loans, it’s not hard to see how that scenario might play out in the United States. It will be hard to rustle up the U.S. Calvary to repel Chinese aggression against Taiwan if China has our ATM card.

What is most disturbing about the existing debt is that history does not spell out a nice ending for these types of scenarios. When nations have massive debts between them, debts so large that it is literally impossible to pay them off, there are only two ways out of the loans: dissolve your nation, or go to war.

Dissolving your nation isn’t easy. Austria-Hungary did it after World War I essentially getting off the hook for millions of dollars in debt owed to the rest of the world. World War II was started by Hitler’s Germany attacking the allies to get out of paying debts from World War I. More recently, Iraq owed the Kuwaiti government over 16 billion dollars in loans and attacked them in 1991 rather than pay off the debt. The time will come, sooner than any of us would like to imagine, when the Chinese government will demand payment on their debts and our options for remittance seem pretty bleak.
 
The United States faces a crisis in the making if the current president does not enforce strict austerity methods as well as more innovative thinking to assuage our debtors across the Pacific. While the G-20 summit might be the beginning of that process, much more needs to be done to break the yoke of foreign debt that the nation has accrued over the last two years.

The opening line to this commentary is roughly translated to “Good morning, my debtor.” If we are not careful, our foreign creditors might be saying that to all of us very soon.