The NYT ran a profile of former Senator Alan Simpson, who was selected as one of the co-chairs of President Obama's deficit reduction commission. The article quotes him as saying: “when Medicare, Medicaid and Social Security suck up the entire revenue stream, we will be going to China and others to finance two wars, and that means borrowing it.”
This statement reflects either Mr. Simpson's ignorance of economics or his antipathy towards China, or possibly both. The reason that the United States borrows money from China is due to the over-valuation of the dollar. At the current level of GDP and current value of the dollar, the United States would be borrowing just as much from China if its budget was balanced. Anyone who is concerned about foreign borrowing by the United States should be discussing the value of the dollar, not the budget deficit.
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