Foreign-Held Debt Transparency and Threat Assessment Act - Expresses the sense of Congress about the growing federal debt of the United States, the increasing U.S. dependence on foreign creditors like the People's Republic of China, whose holdings could give China a tool with which to manipulate U.S. policymaking (including with respect to Taiwan) and pose a direct threat to the national economy and national security.
Directs the President to report quarterly to certain congressional committees on the risks posed by foreign holdings of U.S. debt instruments, and make such report public on the Internet.
Directs the President to formulate, report to the appropriate congressional committees, and implement a plan of action to reduce an unsustainable level of risk to an acceptable and sustainable level, in a manner that results in a reduction in federal spending, in any case in which the President makes specified determinations that a foreign country's holdings of U.S. debt instruments pose an unacceptable risk to long-term national security or economic stability of the United States.
[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 1028 Introduced in Senate (IS)]
112th CONGRESS
1st Session
S. 1028
To increase transparency regarding debt instruments of the United
States held by foreign governments, to assess the risks to the United
States of such holdings, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 19, 2011
Mr. Cornyn (for himself and Mr. Kyl) introduced the following bill;
which was read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To increase transparency regarding debt instruments of the United
States held by foreign governments, to assess the risks to the United
States of such holdings, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Foreign-Held Debt Transparency and
Threat Assessment Act''.
SEC. 2. DEFINITIONS.
In this Act:
(1) Appropriate congressional committees.--The term
``appropriate congressional committees'' means the following:
(A) The Committee on Armed Services, the Committee
on Foreign Relations, the Committee on Finance, and the
Committee on the Budget of the Senate.
(B) The Committee on Armed Services, the Committee
on Foreign Affairs, the Committee on Ways and Means,
and the Committee on the Budget of the House of
Representatives.
(2) Debt instruments of the united states.--The term ``debt
instruments of the United States'' means all bills, notes, and
bonds issued or guaranteed by the United States or by an entity
of the United States Government, including any Government-
sponsored enterprise.
SEC. 3. FINDINGS.
Congress makes the following findings:
(1) On March 16, 2006, the United States Senate debated and
then narrowly passed legislation, H.J. Res. 47, to increase the
statutory limit on the public debt of the United States. In a
statement published in the Congressional Record, then-Senator
Barack Obama opposed the legislation and stated, ``The fact
that we are here today to debate raising America's debt limit
is a sign of leadership failure. It is a sign that the U.S.
Government can't pay its own bills. It is a sign that we now
depend on ongoing financial assistance from foreign countries
to finance our Government's reckless fiscal policies.''. Then-
Senator Obama went on to say that ``Increasing America's debt
weakens us domestically and internationally. Leadership means
that `the buck stops here'. Instead, Washington is shifting the
burden of bad choices today onto the backs of our children and
grandchildren. America has a debt problem and a failure of
leadership. Americans deserve better.''.
(2) On February 25, 2010, United States Secretary of State,
Hillary Rodham Clinton, urged members of Congress to address
the Federal budget deficit: ``We have to address this deficit
and the debt of the United States as a matter of national
security, not only as a matter of economics. I do not like to
be in a position where the United States is a debtor nation to
the extent that we are.''. The Secretary went on to say that
reliance on foreign creditors has hit the United States
``ability to protect our security, to manage difficult problems
and to show the leadership that we deserve.''.
(3) On February 16, 2011, Admiral Mike Mullen, Chairman of
the Joint Chiefs of Staff, testified before the Committee on
Armed Services of the Senate: ``Indeed, I believe that our debt
is the greatest threat to our national security. If we as a
country do not address our fiscal imbalances in the near-term,
our national power will erode, and the costs to our ability to
maintain and sustain influence could be great.''.
(4) The Department of the Treasury borrows from the private
economy by selling securities, including Treasury bills, notes,
and bonds, in order to finance the Federal budget deficit. This
additional borrowing to finance the deficit adds to the Federal
debt.
(5) The Federal debt stands at more than
$14,345,000,000,000.
(6) According to a report issued by the Department of the
Treasury on May 16, 2011, entitled ``Major Foreign Holders of
Treasury Securities'', foreign holdings of United States
Treasury securities stood at more than $3,175,000,000,000 at
the end of March 2011. The People's Republic of China was the
single largest holder with holdings of more than
$1,144,000,000,000.
(7) Despite efforts by the Department of the Treasury to
identify the nationality of the ultimate holders of United
States securities, including United States Treasury securities,
data pertaining to foreign holders of these securities may
still fail to reflect the true nationality of the foreign
entities involved. For example, another Department of the
Treasury report, issued on February 28, 2011, entitled
``Preliminary Report on Foreign Holdings of U.S. Securities At
End-June 2010'', assigns $732,000,000,000 worth of United
States securities to the Cayman Islands, a British overseas
territory with a population of only 55,000 people. The Cayman
Islands is not itself a large investor in United States
securities; rather, it is a major international financial
center and is routinely used as a place to invest funds from
elsewhere.
(8) On February 25, 2010, Simon Johnson, an economics
professor at the Massachusetts Institute of Technology and a
former chief economist for the International Monetary Fund,
testified before the U.S.-China Economic and Security Review
Commission that United States Treasury data understate 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.''. He
stated that ``a great deal'' of the United Kingdom's increase
in United States Treasury securities last year ``may be due to
China placing offshore dollars in London-based banks'', which
are then used to purchase United States Treasury securities.
(9) On February 25, 2010, Dr. Eswar Prasad, an economist at
Cornell University, testified before the U.S.-China Economic
and Security Review Commission that the amount of United States
debt held by the People's Republic of China is much higher than
United States Treasury data indicate. In his revised testimony,
Dr. Prasad went on to explain that China is probably currently
holding more than $1,300,000,000,000 in United States Treasury
securities.
(10) According to a February 3, 2009, report by the
Heritage Foundation, entitled ``Chinese Foreign Investment:
Insist on Transparency'', the State Administration of Foreign
Exchange (SAFE) of the People's Republic of China, the
government body that purchases foreign securities, is the
single largest global investor and the largest foreign investor
in the United States.
(11) According to a September 2008 Council on Foreign
Relations report entitled ``Sovereign Wealth and Sovereign
Power,'' ``. . . political might is often linked to financial
might, and a debtor's capacity to project military power hinges
on the support of its creditors . . . The United States' main
sources of financing are not allies.''. The report goes on to
argue that, ``the United States' current reliance on other
governments for financing represents an underappreciated
strategic vulnerability.''.
(12) In recent years, Chinese military officials have
publicized the potential use of United States Treasury
securities as a means of influencing United States policy and
deterring specific United States actions. On February 8, 2010,
retired People's Liberation Army (PLA) Major General Luo Yuan,
from the PLA Academy of Military Science, stated in an
interview with state-controlled media that China could attack
the United States ``by oblique means and stealthy feints'', in
retaliation for United States arms sales to Taiwan. He went on
to say, ``Our retaliation should not be restricted to merely
military matters, and we should adopt a strategic package of
counterpunches covering politics, military affairs, diplomacy
and economics to treat both the symptoms and root cause of this
disease. For example, we could sanction them using economic
means, such as dumping some U.S. government bonds.''.
(13) The PLA has also referenced the concept of nonmilitary
aspects of deterrence in written statements. A PLA textbook,
``The Science of Military Strategy'', observes that there are
various forms of deterrence, including economic and
technological, all of which need to be developed and
consciously strengthened in order to maximize effect. These
forms will only work ``with the determination and volition of
employment of the force, and by dangling the word of deterrence
over the rival's head in case of necessity.''.
(14) According to a May 16, 2011, report by ABC News, a
congressional delegation of 10 United States Senators visited
China in April 2011, and met with Chinese government officials.
The news report indicates that, during one meeting, the
Senators were reprimanded by a Chinese official regarding the
mounting United States Federal debt.
(15) A February 7, 2010, report by Defense News suggests
that China's extensive holdings of United States Government
securities have already directly influenced United States
national security policy. According to an unnamed Pentagon
official, Obama Administration officials softened a draft of a
key national security document in order to avoid ``harsh
words'' that ``might upset Chinese officials at a time when the
United States and China are economically intertwined.''. The
news report indicates that these officials ``deleted several
passages and softened others about China's military buildup''.
This critical document, the 2010 Quadrennial Defense Review,
provides an assessment of long-term threats and challenges for
the Nation and is intended to guide military programs, plans,
and budgets in the coming decades.
(16) The United States Government pays China a substantial
amount of interest on China's $1,144,000,000,000 in holdings of
United States Government debt, and this enhances China's
ability to fund its own military programs.
(17) According to a March 4, 2011, report by Xinhua, the
official press agency of the government of the People's
Republic of China, China plans to increase its 2011 military
budget by 12.7 percent to 601,000,000,000 yuan (the equivalent
of $91,500,000,000). This increase is in addition to China's
2010 increase in its military budget of 7.5 percent.
(18) According to the Department of Defense's (DoD) 2010
report entitled ``Military and Security Developments Involving
the People's Republic of China,'' the DoD estimates China's
actual total military-related spending for 2009 to be over
$150,000,000,000.
SEC. 4. SENSE OF CONGRESS.
It is the sense of Congress that--
(1) the growing Federal debt of the United States has the
potential to jeopardize the national security and economic
stability of the United States;
(2) the increasing dependence of the United States on
foreign creditors has the potential to make the United States
vulnerable to undue influence by certain foreign creditors in
national security and economic policymaking;
(3) the People's Republic of China is the largest foreign
creditor of the United States, in terms of its overall holdings
of debt instruments of the United States;
(4) the current level of transparency in the scope and
extent of foreign holdings of debt instruments of the United
States is inadequate and needs to be improved, particularly
regarding the holdings of the People's Republic of China;
(5) through the People's Republic of China's large holdings
of debt instruments of the United States, China has become a
super creditor of the United States;
(6) under certain circumstances, the holdings of the
People's Republic of China could give China a tool with which
China can try to manipulate the domestic and foreign
policymaking of the United States, including the United States
relationship with Taiwan;
(7) under certain circumstances, if the People's Republic
of China were to be displeased with a given United States
policy or action, China could attempt to destabilize the United
States economy by rapidly divesting large portions of China's
holdings of debt instruments of the United States; and
(8) the People's Republic of China's expansive holdings of
such debt instruments of the United States could potentially
pose a direct threat to the United States economy and to United
States national security. This potential threat is a
significant issue that warrants further analysis and
evaluation.
SEC. 5. QUARTERLY REPORT ON RISKS POSED BY FOREIGN HOLDINGS OF DEBT
INSTRUMENTS OF THE UNITED STATES.
(a) Quarterly Report.--Not later than March 31, June 30, September
30, and December 31 of each year, the President shall submit to the
appropriate congressional committees a report on the risks posed by
foreign holdings of debt instruments of the United States, in both
classified and unclassified form.
(b) Matters To Be Included.--Each report submitted under this
section shall include the following:
(1) The most recent data available on foreign holdings of
debt instruments of the United States, which data shall not be
older than the date that is 7 months preceding the date of the
report.
(2) The country of domicile of all foreign creditors who
hold debt instruments of the United States.
(3) The total amount of debt instruments of the United
States that are held by the foreign creditors, broken out by
the creditors' country of domicile and by public, quasi-public,
and private creditors.
(4) For each foreign country listed in paragraph (2)--
(A) an analysis of the country's purpose in holding
debt instruments of the United States and long-term
intentions with regard to such debt instruments;
(B) an analysis of the current and foreseeable
risks to the long-term national security and economic
stability of the United States posed by each country's
holdings of debt instruments of the United States; and
(C) a specific determination of whether the level
of risk identified under subparagraph (B) is acceptable
or unacceptable.
(c) Public Availability.--The President shall make each report
required by subsection (a) available, in its unclassified form, to the
public by posting it on the Internet in a conspicuous manner and
location.
SEC. 6. ANNUAL REPORT ON RISKS POSED BY THE FEDERAL DEBT OF THE UNITED
STATES.
(a) In General.--Not later than December 31 of each year, the
Comptroller General of the United States shall submit to the
appropriate congressional committees a report on the risks to the
United States posed by the Federal debt of the United States.
(b) Content of Report.--Each report submitted under this section
shall include the following:
(1) An analysis of the current and foreseeable risks to the
long-term national security and economic stability of the
United States posed by the Federal debt of the United States.
(2) A specific determination of whether the levels of risk
identified under paragraph (1) are sustainable.
(3) If the determination under paragraph (2) is that the
levels of risk are unsustainable, specific recommendations for
reducing the levels of risk to sustainable levels, in a manner
that results in a reduction in Federal spending.
SEC. 7. CORRECTIVE ACTION TO ADDRESS UNACCEPTABLE AND UNSUSTAINABLE
RISKS TO UNITED STATES NATIONAL SECURITY AND ECONOMIC
STABILITY.
In any case in which the President determines under section
5(b)(4)(C) that a foreign country's holdings of debt instruments of the
United States pose an unacceptable risk to the long-term national
security or economic stability of the United States, the President
shall, within 30 days of the determination--
(1) formulate a plan of action to reduce the risk level to
an acceptable and sustainable level, in a manner that results
in a reduction in Federal spending;
(2) submit to the appropriate congressional committees a
report on the plan of action that includes a timeline for the
implementation of the plan and recommendations for any
legislative action that would be required to fully implement
the plan; and
(3) move expeditiously to implement the plan in order to
protect the long-term national security and economic stability
of the United States.
<all>
Introduced in Senate
Read twice and referred to the Committee on Finance.
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