China will pick up the tab
for our debts

  In oversimplified version, this is how it works. Once upon a time, when the American government needed money and didn't happen to have any readily available funds to pay for whatever it was buying, it went into its reserves, cashed them in, and wrote a check to the people to whom it owed the money at an agreed rate of interest. When the bill came due, it simply issued bonds and some sort of Treasury papers.

  This is the result of the Democratic-tax and-spend philosophy of government, you say?

  Who buys these debts? Countries that have piled up heaps of American money and are only too willing to buy American debts because such purchases are a good investment. The last time we were free of such debts -- principal and interest -- was not in the 19th century, but in the final years of the Clinton administration when the budget was balanced and we had no need to go further into debt.

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  However, the Bush administration, determined to fight a war and still reduce taxes, spent money like it was the proverbial drunken sailor. Who rushed in to pick up the debts? The Chinese had scads of Yankee dollars because the low costs of their cheap labor enabled them to manufacture goods that Americans wanted to buy at much cheaper prices than we would have to pay for similar goods made in America.

  The Chinese might tire of this exchange as the years go on and tell us, "Yankee go home; we buy other people's debts."

  But being very clever, they don't do that. They are very clever, you see.

  They undersell our products, then purchase the notes of debt we need to keep our government going. As Yogi Berra says in the ad, they are as good as money. But that would kill the goose that has been laying golden eggs for the Arabs for the last half century. The clever Chinese know that we are a rich and powerful country and can survive for a long time on such an exchange.

  So when the American media go bananas about taxpayers picking up the $700 billion tab for the rescue legislation, they conjure up an image of uniformed bank guards in armored cars pulling up to the doors of our home and confiscating our share of the bailout funds. That's not what happens. The Chinese use some part of our vast indebtedness to finance the bill and collect a nice fee for the exchange. They lend us back our money earned from our poor balance of payments so long as we pay them for that money and roll over the paper, also at a fee, when the debts come due. The Chinese are in fact delighted to provide this service because it keeps the golden-egg goose alive to continue laying its golden eggs.

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