Texas Insider Report: WASHINGTON D.C. U.S. Senator John Cornyn a member of the Senate Committees on the Budget and Armed Services today delivered the following opening remarks as prepared for delivery at the Heritage Foundations event The China Challenge: Mixing Economics and Security:
Its good to be back at the Heritage Foundation where so many great scholars and leaders have advanced the cause of freedom.
The last time I spoke at Heritage I was one of only 40 Republicans in the United States Senate. That was the fewest number of GOP Senators since 1964. We could not stop anything that Nancy Pelosi and Harry Reid wanted to send to the Obama White House and they really turned the screws on Americas freedom and prosperity.
Today our caucus has 47 members. We are in a much stronger position. The Senate Majority cant roll over us like they used to. But 47 seats isnt enough to govern in the United States Senate. And so many of our nations problems have remained unresolved.
We are all here this morning to discuss one of those unresolved problems and thats the challenge of China. Its my job to talk about one facet on that challenge and thats the link between our growing national debt and Chinas investment in that debt. Its also the nexus between our greatest dilemma in domestic policy and one of our greatest dilemmas in foreign affairs.
Of course our national debt would be an issue even if China didnt own a single Treasury bill note or bond. In fact Admiral Mike Mullen the Chairman of the Joint Chiefs of Staff has said repeatedly that our debt is the single greatest threat to our national security. And Secretary Clinton has said that our debt sends a message of weakness internationally.
The American people understand intuitively that we are spending too much money that we dont have. But new numbers seem to come out every week that confirm their worst fears.
Last week it was the nonpartisan Congressional Budget Office which issued its Long-Term Budget Outlook. CBO now projects our national debt will reach roughly 70 percent of GDP by the end of this year. Thats up from 40 percent just 3 years ago in 2008. CBO called the nations budget outlook daunting. Among other things the analysts at CBO are masters of understatement!
Our debt is now more than $14.3 trillion which means that every child born in America today comes into this world with roughly $46000 in debt that they owe.
Our debt is big and getting bigger. Washington is now borrowing 43 cents of every dollar that it spends. Our deficit will be more than $1.5 trillion this year or about 10 percent of our entire economy.
And the astonishing thing is that none of these numbers have changed the worldview of the President and his party.
The Democrats still want more spending though theyd rather phrase it as investments to support nation-building here at home.
The Democrats still want higher taxes though theyd prefer to use the word revenues.
And the Democrats still will not propose a budget.
Republicans do not control the Senate chamber but we do have leverage. Today Senate Republicans are launching a major push to get a vote on the Balanced Budget Amendment. This is a joint resolution cosponsored by all 47 Senate Republicans. It reflects a compromise between the joint resolution that Senator Hatch and I developed and the one introduced by Senator Lee.
But all Senate Republicans are on the same page and we are not alone. 49 states have balanced budget requirements. Every American family and small business has to live within its means.
A balanced budget amendment to the United States Constitution would permanently change Washingtons behavior and permanently reduce our exposure to foreign creditors like China.
Now just as the debt is a huge challenge regardless of the China connection so too China represents a huge challenge above and beyond of its investment in our debt.
Many of Chinas neighbors are concerned about its military buildup and territorial ambitions. Chinas official press agency reported in March that the Peoples Republic of China will increase its military budget this year by more than 12 percent after an increase last year of 7.5 percent. But the Pentagon estimates that Chinas official budget of some $90 billion is far less than the $150 billion they actually spend.
Who does China intend to intimidate with this growing military power? The list is growing. Last year China claimed the South China Sea as a core interest which unsettled Vietnam the Philippines Indonesia and lots of other nations. China renewed a long-running dispute with India over the borders of the Arunachal Pradesh region. China continues to be an enabler of the regime in North Korea.
Earlier this month Google publicly reported that a Chinese entity has been targeting the personal email accounts of U.S. and South Korean government employees. And Pakistans defense minister publicly discussed the possibility of China building a naval base at Gwadar Pakistan which is already home to a new strategically important port at the mouth of the Gulf of Oman.
Yet the activity that draws the most attention is certainly Chinas ownership of huge amounts of U.S. debt.
The Treasury department reported a few weeks ago that China holds more than $1.1 trillion of U.S. securities which makes China is the single largest holder of our publicly-held debt. In fact China holds more than a third of all the foreign holdings of U.S. publicly-held debt.
Some folks say that theres no cause for alarm yet. Because as long as China restricts the investment of its foreign reserves in its own country then China really has fewer alternatives to its current investment strategy.
Still its clear that many voices in China want the United States to be nervous about what it might do with its investment portfolio. Last year for example a retired Chinese general publicly suggested that dumping U.S. bonds could be one way China could retaliate for U.S. actions it didnt like.
Some of this talk from Chinese officials may have already influenced our national security policy during the development of the 2010 Quadrennial Defense Review. According to one report from within the Pentagon Obama Administration officials deleted several passages and softened others about Chinas military buildup. They did this to avoid words in the QDR that might upset Chinese officials at a time when the United States and China are economically intertwined.
More recently a number of my colleagues got an earful from Chinese officials when they visited Beijing in April. I find it embarrassing to have United States Senators being lectured on fiscal discipline by members of the Communist Party.
And just this week we got a high-level reminder that China will use its influence to impact currency markets. In Hungary Chinese Premier Wen Jaibao assured the Europeans that China is a long-term investor in Europes sovereign-debt market." And that: We will consistently continue to support Europe and the euro.
So do the Chinese have leverage over the United States through their investments in our debt? Or do they just want us to think they do?
Either way what we need is greater transparency on which foreign investors are holding U.S. securities. I mentioned that the Treasury Department estimates that China holds about $1.1 trillion of those securities but those are just estimates. The Chinese dont tell us exactly what their holdings are.
Simon Johnson whos a former chief economist for the International Monetary Fund testified last year that U.S. Treasury data understates Chinese holdings of United States Government debt and do not reveal the ultimate country of ownership when debt instruments are held through an intermediary in another jurisdiction.
For example he said that a great deal of the United Kingdoms increase in United States Treasury securities may be due to China placing offshore dollars in London-based banks which are then used to purchase United States Treasury securities.
Or consider the Cayman Islands which has a population of only 55000 people but which the Treasury Department said last year holds more than $730 billion in U.S. securities.
I believe we can do a lot better in getting accurate and timely information to the Congress and to the American people. And thats why Senator Kyl and I have reintroduced The Foreign-Held Debt Transparency and Threat Assessment Act of 2011.
This bill requires the President to provide Congress with quarterly risk assessments both classified and unclassified on the national security and economic hazards posed by current levels of foreign holdings of U.S. Government debt instruments.
Our bill instructs the GAO to provide Congress with an annual risk assessment on national security and economic hazards posed by the national debt as well as recommendations for reducing federal spending.
And the bill requires the President in the event that any heightened risks are found to exist to address those risks and implement a plan of action to reduce federal spending.
Several people in this room provided feedback on this legislation including Derek Scissors Walter Lohman and Dean Cheng.
And while Secretary Geithner expressed concerns about the bill in the Finance Committee it nevertheless passed the passed the Senate last June as an amendment to the unemployment compensation bill but never passed the House.
This year Senator Kyl and I have reintroduced it. This bill has a House companion again this year. And we are hopeful that we can get this to the Presidents desk.
Let me leave you with a quote from another member of the United States Senate back in 2006. He said: Increasing Americas debt weakens us domestically and internationally. He also said: It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Governments reckless fiscal policies.
As you may have guessed that Senators name was Barack Obama. Five years ago when he spoke those words our public debt was just under $5 trillion compared to more than $9 trillion today. Our public debt as a share of GDP was 36 -- which means it will have nearly doubled by the end of this year.
Back then Chinas holdings of U.S. debt was $319 billion or less than a third of what it is today. And China wasnt even our biggest foreign creditor back then they were a distant second behind Japan.
I quote the Presidents past words on this subject not just to point out the hypocrisy between his call for leadership then and his lack of leadership now…
I quote him because the challenge has grown dramatically in the last five years. And so has our imperative for action.
I want to thank all of you for being here this morning. Thank you."
Senator Cornyn serves on the Finance Judiciary Armed Services and Budget Committees. He serves as the top Republican on the Judiciary Committees Immigration Refugees and Border Security subcommittee. He served previously as Texas Attorney General Texas Supreme Court Justice and Bexar County District Judge.
Texas Insider Report: WASHINGTON D.C. U.S. Senator John Cornyn a member of the Senate Committees on the Budget and Armed Services today delivered the following opening remarks as prepared for delivery at the Heritage Foundations event The China Challenge: Mixing Economics and Security:
Its good to be back at the Heritage Foundation where so many great scholars and leaders have advanced the cause of freedom.
The last time I spoke at Heritage I was one of only 40 Republicans in the United States Senate. That was the fewest number of GOP Senators since 1964. We could not stop anything that Nancy Pelosi and Harry Reid wanted to send to the Obama White House and they really turned the screws on Americas freedom and prosperity.
Today our caucus has 47 members. We are in a much stronger position. The Senate Majority cant roll over us like they used to. But 47 seats isnt enough to govern in the United States Senate. And so many of our nations problems have remained unresolved.
We are all here this morning to discuss one of those unresolved problems and thats the challenge of China. Its my job to talk about one facet on that challenge and thats the link between our growing national debt and Chinas investment in that debt. Its also the nexus between our greatest dilemma in domestic policy and one of our greatest dilemmas in foreign affairs.
Of course our national debt would be an issue even if China didnt own a single Treasury bill note or bond. In fact Admiral Mike Mullen the Chairman of the Joint Chiefs of Staff has said repeatedly that our debt is the single greatest threat to our national security. And Secretary Clinton has said that our debt sends a message of weakness internationally.
The American people understand intuitively that we are spending too much money that we dont have. But new numbers seem to come out every week that confirm their worst fears.
Last week it was the nonpartisan Congressional Budget Office which issued its Long-Term Budget Outlook. CBO now projects our national debt will reach roughly 70 percent of GDP by the end of this year. Thats up from 40 percent just 3 years ago in 2008. CBO called the nations budget outlook daunting. Among other things the analysts at CBO are masters of understatement!
Our debt is now more than $14.3 trillion which means that every child born in America today comes into this world with roughly $46000 in debt that they owe.
Our debt is big and getting bigger. Washington is now borrowing 43 cents of every dollar that it spends. Our deficit will be more than $1.5 trillion this year or about 10 percent of our entire economy.
And the astonishing thing is that none of these numbers have changed the worldview of the President and his party.
The Democrats still want more spending though theyd rather phrase it as investments to support nation-building here at home.
The Democrats still want higher taxes though theyd prefer to use the word revenues.
And the Democrats still will not propose a budget.
Republicans do not control the Senate chamber but we do have leverage. Today Senate Republicans are launching a major push to get a vote on the Balanced Budget Amendment. This is a joint resolution cosponsored by all 47 Senate Republicans. It reflects a compromise between the joint resolution that Senator Hatch and I developed and the one introduced by Senator Lee.
But all Senate Republicans are on the same page and we are not alone. 49 states have balanced budget requirements. Every American family and small business has to live within its means.
A balanced budget amendment to the United States Constitution would permanently change Washingtons behavior and permanently reduce our exposure to foreign creditors like China.
Now just as the debt is a huge challenge regardless of the China connection so too China represents a huge challenge above and beyond of its investment in our debt.
Many of Chinas neighbors are concerned about its military buildup and territorial ambitions. Chinas official press agency reported in March that the Peoples Republic of China will increase its military budget this year by more than 12 percent after an increase last year of 7.5 percent. But the Pentagon estimates that Chinas official budget of some $90 billion is far less than the $150 billion they actually spend.
Who does China intend to intimidate with this growing military power? The list is growing. Last year China claimed the South China Sea as a core interest which unsettled Vietnam the Philippines Indonesia and lots of other nations. China renewed a long-running dispute with India over the borders of the Arunachal Pradesh region. China continues to be an enabler of the regime in North Korea.
Earlier this month Google publicly reported that a Chinese entity has been targeting the personal email accounts of U.S. and South Korean government employees. And Pakistans defense minister publicly discussed the possibility of China building a naval base at Gwadar Pakistan which is already home to a new strategically important port at the mouth of the Gulf of Oman.
Yet the activity that draws the most attention is certainly Chinas ownership of huge amounts of U.S. debt.
The Treasury department reported a few weeks ago that China holds more than $1.1 trillion of U.S. securities which makes China is the single largest holder of our publicly-held debt. In fact China holds more than a third of all the foreign holdings of U.S. publicly-held debt.
Some folks say that theres no cause for alarm yet. Because as long as China restricts the investment of its foreign reserves in its own country then China really has fewer alternatives to its current investment strategy.
Still its clear that many voices in China want the United States to be nervous about what it might do with its investment portfolio. Last year for example a retired Chinese general publicly suggested that dumping U.S. bonds could be one way China could retaliate for U.S. actions it didnt like.
Some of this talk from Chinese officials may have already influenced our national security policy during the development of the 2010 Quadrennial Defense Review. According to one report from within the Pentagon Obama Administration officials deleted several passages and softened others about Chinas military buildup. They did this to avoid words in the QDR that might upset Chinese officials at a time when the United States and China are economically intertwined.
More recently a number of my colleagues got an earful from Chinese officials when they visited Beijing in April. I find it embarrassing to have United States Senators being lectured on fiscal discipline by members of the Communist Party.
And just this week we got a high-level reminder that China will use its influence to impact currency markets. In Hungary Chinese Premier Wen Jaibao assured the Europeans that China is a long-term investor in Europes sovereign-debt market." And that: We will consistently continue to support Europe and the euro.
So do the Chinese have leverage over the United States through their investments in our debt? Or do they just want us to think they do?
Either way what we need is greater transparency on which foreign investors are holding U.S. securities. I mentioned that the Treasury Department estimates that China holds about $1.1 trillion of those securities but those are just estimates. The Chinese dont tell us exactly what their holdings are.
Simon Johnson whos a former chief economist for the International Monetary Fund testified last year that U.S. Treasury data understates Chinese holdings of United States Government debt and do not reveal the ultimate country of ownership when debt instruments are held through an intermediary in another jurisdiction.
For example he said that a great deal of the United Kingdoms increase in United States Treasury securities may be due to China placing offshore dollars in London-based banks which are then used to purchase United States Treasury securities.
Or consider the Cayman Islands which has a population of only 55000 people but which the Treasury Department said last year holds more than $730 billion in U.S. securities.
I believe we can do a lot better in getting accurate and timely information to the Congress and to the American people. And thats why Senator Kyl and I have reintroduced The Foreign-Held Debt Transparency and Threat Assessment Act of 2011.
This bill requires the President to provide Congress with quarterly risk assessments both classified and unclassified on the national security and economic hazards posed by current levels of foreign holdings of U.S. Government debt instruments.
Our bill instructs the GAO to provide Congress with an annual risk assessment on national security and economic hazards posed by the national debt as well as recommendations for reducing federal spending.
And the bill requires the President in the event that any heightened risks are found to exist to address those risks and implement a plan of action to reduce federal spending.
Several people in this room provided feedback on this legislation including Derek Scissors Walter Lohman and Dean Cheng.
And while Secretary Geithner expressed concerns about the bill in the Finance Committee it nevertheless passed the passed the Senate last June as an amendment to the unemployment compensation bill but never passed the House.
This year Senator Kyl and I have reintroduced it. This bill has a House companion again this year. And we are hopeful that we can get this to the Presidents desk.
Let me leave you with a quote from another member of the United States Senate back in 2006. He said: Increasing Americas debt weakens us domestically and internationally. He also said: It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Governments reckless fiscal policies.
As you may have guessed that Senators name was Barack Obama. Five years ago when he spoke those words our public debt was just under $5 trillion compared to more than $9 trillion today. Our public debt as a share of GDP was 36 -- which means it will have nearly doubled by the end of this year.
Back then Chinas holdings of U.S. debt was $319 billion or less than a third of what it is today. And China wasnt even our biggest foreign creditor back then they were a distant second behind Japan.
I quote the Presidents past words on this subject not just to point out the hypocrisy between his call for leadership then and his lack of leadership now…
I quote him because the challenge has grown dramatically in the last five years. And so has our imperative for action.
I want to thank all of you for being here this morning. Thank you."
Senator Cornyn serves on the Finance Judiciary Armed Services and Budget Committees. He serves as the top Republican on the Judiciary Committees Immigration Refugees and Border Security subcommittee. He served previously as Texas Attorney General Texas Supreme Court Justice and Bexar County District Judge.
