Roundtable on Obama's Trip to China

Roundtable on Obama's Trip to China

By Special Report With Bret Baier - November 17, 2009


PRESIDENT BARACK OBAMA: So far, China's partnership has proved critical in our effort to pull ourselves out of the worst recession in generations. Given that interconnection, I do not believe that one country he's success must come at the expense of another.

HU JINTAO, CHINESE PRESIDENT (via translator): We believe that now the world economy has shown some signs of stabilizing and recovering, but the foundation for this recovery is not firmly established.


BAIER: There is concern in China about the U.S. economic situation. Why? Because some analysts put the U.S. debt to China at about $1.3 trillion U.S. dollars, most of that in U.S. treasuries.

What about all of this? We're back with our panel - Nina?

EASTON: Well, the biggest critic of the Obama-level spending is not John Boehner, believe it or not. It is the Chinese, and they have been expressing this concern going way back this summer when they met with top officials.

The difference between John Boehner and the Chinese is that they have real power over us. A lot of investors talk about overseas, investors talk about the possibility of what they obliquely call a "debt event" as it being a real national security possibility.

What if the Chinese suddenly led a stampede of investors out of U.S. treasuries, the value of the treasuries fell and our country essentially went bank bankrupt?

There is that possibility. It is remote. And it is unlikely the Chinese will do that at this point because it affects their own holdings. But they do have tremendous power over us.

BAIER: Explain the $1.3 trillion. You have about $800 billion in U.S. treasuries. What is the rest?

EASTON: The rest is agency debt, like Fannie Mae, Freddie Mac, those sorts of agency holdings.

BAIER: That's a big hole.

EASTON: It's a big hole. It is a big hole to fill.

The other thing is the lectures, we have heard a lot on this, on "Special Report" tonight about the lectures that the U.S. is giving China about their economy. Well, the Chinese view us as this profligate economy where, first of all, the private sector and households are living way beyond their means and now the government is living way beyond their means.

So they think they have the upper hand on this moral argument.

BAIER: Charles?

KRAUTHAMMER: Look, the reason you have this odd alliance between Republicans and Chinese on health care reform is that the Chinese holding all this debt they know that eventually the United States will take care of it in one way. It's not going to be default. We are not Argentina. It is not going to be a repudiation of debt the way that Cuba did.

It is going to be in inflation. We will inflate our way out. It takes only four and a half years of 10 percent inflation to actually cut the value of the dollar in half. The Chinese are worried about this.

Now, the existing amount of debt, over $1 trillion or so, is large, but it's not out of control. It is about a tenth of our GNP.

What the Chinese are worried about is the ambitious social agenda this administration is going to add hugely onto our debt, starting with a new entitlement in health care reform which could add trillions to national debt, even our projections today.

In the absence of health reform are going to be $9 trillion added in debt over a decade. They are holding all of that stuff, and that could ultimately wipe out all their holdings.

That's why the Chinese are worried and that's why Republicans are worried and that's why Americans are worried about this incredible spending that the Obama administration has on its agenda.

BAIER: Steve?

HAYES: You know you're in trouble when you're being lectured by communists about the size and scope of government. That's never a good day.

I think that actually having one-tenth of your GDP as a deficit in 2010, which is the projection, is quite large and I think deeply troubling. I think that's one of the main reasons that you're seeing this kind of talk from the Chinese and concerns about devaluations.

What is interesting was going into this week the Obama administration had clearly set out to message on deficits. There was a big piece in Politico talking about his commitment to reducing deficits. He said it in his remarks the other day.

And, again, this goes back to what we talked to about on the first panel: There is a credibility problem here. The things that you are proposing are new heights. I mean, reports today of $12 trillion debt for the first time.

You are talking about deficits into this political reality that makes people think does he even understand what he's talking about?

BAIER: Nina, last word - does the president come out of this trip with anything in regards to the Chinese?

EASTON: Well, he didn't come out with a climate change agreement. And he's not coming out with anything on currency or trade. But in fairness, you know, the previous administration didn't get much on currency or trade out of the Chinese either, so they're tough partners.

BAIER: We'll see what happens with Iran.


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