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Matt Miller Headshot

Time for a Big Debt Deal With China

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As Democrats move this week to raise America's $12.1 trillion debt
limit, we're deep into the usual kabuki-style fuss over this must-pass
legislation. The opposition party denounces the fiscal recklessness of the
party in power. Chin-stroking scolds cluck about the need for a bipartisan
commission. Stenographers in the media inexplicably characterize these
commission-mongers as "fiscal conservatives," though they offer not a single
concrete proposal to cut spending or raise taxes. It's all so predictable
and depressing. If America is fated to sink under a tide of debt, can't we
at least bring something fresh to the task?

That's where financial innovation comes in. Usually such ingenuity is
the preserve of the private sector -- think of all those incomprehensible
securities that drove the economy to the brink. But there's no reason
America's financial bureaucrats can't think creatively as well.

Treasury is perpetually anxious about whether China will continue to buy
our debt, now that deficits are running over $1 trillion a year, and we're
slated to add a stunning $10 trillion in new debt over the next decade. So
here's an idea. Instead of worrying about whether the Chinese will show up
at our public Treasury auctions every few months, why don't we reach out to
cut a deal with China directly via a major private debt placement, as
routinely happens with private companies seeking cash from lenders?

We'd ask the Chinese to pick up, say, another trillion or so in Treasury
debt over the next few years. We'd let them lock in an interest rate that
seems attractive to both sides. Presto! Half the worry (and xenophobia)
that comes with today's debt -- will the Chinese, or won't they? --
disappears. It's a long-term business deal, pure and simple.

Yes, the optics of this private placement would be unprecedented and
humiliating. But so what? These are extraordinary times. China still has
big savings surpluses that need to be invested. We need to borrow massively
for at least a few more years. Why worry month-to-month about who will show
up to buy our debt, and what sky-high interest rates they might demand?
Besides, if we were really worried about looking like weak and profligate
idiots, we shouldn't have behaved like weak and profligate idiots in the
first place.

An historic private placement would let China feel Warren Buffett-like to
boot -- an heroic investor at a time of national need. Maybe as part of the
deal (in exchange, say, for an interest rate break) we'd give China, for
free, the green energy technology we want them to be using instead of all
those dirty coal plants that could lock in emissions woes for decades.
Call it a Copenhagen/debt limit two-fer.

In an age of relative American decline, private placement of U.S.
Treasury debt with the world's leading Communist power is an embarrassment
whose time has come. The mere mention of it lifts the debt limit squabble
out of its unbearable rut. And if we're going to go down under the weight
of our indulgent refusal to make responsible fiscal choices, let's at least
go down with a little brio.