By 2015, we will be sending so much interest to China that "we will be paying for the entire People's Liberation Army."
During the Nov. 9, 2011, Republican presidential debate in Michigan, Rep. Michele Bachmann took aim at the United States’ dependence on borrowing from China with the use of a striking statistic. "By 2015, we will be sending so much interest money over, we will be paying for the entire People's Liberation Army of China, the No. 1 employer of the world," she said. We wondered whether the part about interest payments and the People’s Liberation Army was accurate. (We have seen conflicting information about whether the PLA is the world’s largest employer, so we’re not going to rate that part of her statement.) First, some background. The PLA is the primary military entity within China and includes the army, navy, and air force, as well as the nation’s nuclear missile assets. It has 2.3 million people on active or reserve status. Officially, the Chinese defense budget is $91.5 billion for 2011. But many experts believe the actual figure is significantly higher. In an annual report to Congress, the Pentagon said that "estimating actual PLA military expenditures is a difficult process due to the lack of accounting transparency and China’s still incomplete transition from a command economy. Moreover, China’s published military budget does not include major categories of expenditure." So the Pentagon estimated that China’s total military-related spending for 2009 was actually "over $150 billion." And what about U.S. interest payments to China? As it happened, PolitiFact Virginia looked at that question earlier this year, so we’ll use their methodology here.. The U.S. has $10.26 trillion in publicly held debt -- that is, the sum of all federal securities held by institutions and individuals outside the U.S. government, including China and other foreign nations. China buys U.S. Treasury bonds in public auctions, the same way other nations and investment companies purchase U.S. debt. According to the Treasury Department, China, along with Chinese companies and investment groups, held about $1.14 trillion in U.S. debt in August 2011, or roughly 11 percent of all public debt, making China the biggest holder of U.S. debt of any foreign country. Because American debt has long been considered one of the safest investments in the world, the government can borrow money at very low cost, paying an average of less than 2 percent annual interest on its debt during the past decade. In October 2011, the U.S. had an average interest rate of 2.859 percent. In fiscal 2011, the federal government is expected to spend $206 billion in interest payments for public debt, according to the Office of Management and Budget. So if China holds about 11 percent of the U.S. public debt, then all other things equal, China would have received $22.7 billion that year. That’s well below even the official, $91.5 billion cost of the PLA, much less the Pentagon’s estimate of $150 billion. There are possible developments that could change this. Interest rates could go up; China could take on a bigger U.S. debt load; the mix of debt vehicles held by China could shift; or PLA spending could plummet. But the gap still seems to us to be too wide to bridge. Bachmann did say "by 2015," not currently, but the trendline doesn’t suggest U.S. interest payments will explode by that much in just four years. Our ruling Bachmann said that "by 2015, we will be sending so much interest" to China that "we will be paying for the entire People's Liberation Army." Today, we only pay about a quarter (if you use official statistics) or 15 percent (if you use the Pentagon’s estimate), and the likelihood that those percentages will increase dramatically within four years is almost nil. So we rate Bachmann’s comment False.
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