[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 3240 Introduced in Senate (IS)]
111th CONGRESS
2d Session
S. 3240
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
April 21, 2010
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. 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 (109th
Congress), 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) 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.
(4) The Federal debt stands at more than
$12,863,000,000,000.
(5) According to a report issued by the Department of the
Treasury on April 15, 2010, entitled ``Major Foreign Holders of
Treasury Securities'', foreign holdings of United States
Treasury securities stood at more than $3,750,000,000,000 at
the end of February 2010. China was the single largest holder
with holdings of more than $877,000,000,000.
(6) 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 26, 2010, entitled
``Preliminary Report on Foreign Holdings of U.S. Securities At
End-June 2009'', assigns nearly $650,000,000,000 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.
(7) Despite efforts by the Department of the Treasury to
provide more timely information, the data that the Department
releases is typically outdated. For example, the latest figures
in the February 26, 2010, report on all United States
securities were 8 months old.
(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 the February 3, 2009, report, although
the People's Republic of China has embraced the Generally
Accepted Principles and Practices for Sovereign Wealth guided
by the International Monetary Fund, China's actual outward-
investment practices are far from transparent.
(12) On March 13, 2009, Chinese Premier Wen Jiabao demanded
that the Obama Administration ``guarantee the safety'' of
American bonds, stating, ``We have lent a huge amount of money
to the U.S.''.
(13) According to the Department of Defense's 2009 report
to Congress entitled, ``Military Power of the People's Republic
of China'', the leaders and strategists of the People's
Liberation Army (PLA) often consider China's strategy in terms
of building ``comprehensive national power''. The report
contends that China's growing regional and global economic
stature will result in ``a more active external posture in
which it [China] demonstrates a willingness to assert its
interests . . .''.
(14) Additionally, the Department of Defense report states
that, ``China's sustained economic growth . . . has enabled
China to focus greater resources on building, equipping, and
training the PLA without overwhelming the economy.''. Though
the PLA's official budget has more than doubled from
$27,900,000,000 in 2000 to $60,100,000,000 in 2008, the report
states that the official budget ``does not capture the totality
of military expenditure.''. The report maintains that,
``Continued economic development, central to China's emergence
as a regional and global power, remains the foundation of the
[Chinese Communist] Party's popular legitimacy and underwrites
its military power.''.
(15) On January 29, 2010, the Department of Defense
notified Congress of its intent to sell various defensive arms,
valued at $6,400,000,000, under the Foreign Military Sales
program to Taiwan in accordance with the Taiwan Relations Act
(22 U.S.C. 3301 et seq.).
(16) On February 2, 2010, at a semiweekly media briefing,
Ma Zhaoxu, spokesman of China's foreign ministry, criticized
these pending arms sales to Taiwan, threatening sanctions
against United States companies involved in the sales.
(17) PLA 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 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.''.
(18) The PLA has also referenced the concept of nonmilitary
aspects of deterrence in written statements. As a PLA textbook,
``The Science of Military Strategy'', observes, 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.''.
SEC. 3. 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. 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 (3)--
(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, or the Comptroller
General of the United States makes a determination under section
6(b)(3), 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 time line 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.
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