Byline: Niall Ferguson
Whatever the rating agencies say, many in China believe the U.S. is no longer creditworthy.
Xian, China--viewed from inside the Beltway, the passage of legislation to raise the federal debt ceiling was a triumph for democracy.
"The push and pull Americans saw in Washington these past few weeks--was the will of the people working itself out," declared Mitch McConnell, the Republican leader in the Senate. The appearance of Gabrielle Giffords to vote for the bill raised not just the ceiling but also the roof.
Viewed from Beijing, it looked very different. Indeed, it's hard to imagine what more we could have done to vindicate the Chinese Communist Party's position that Western democracy is a form of institutionalized chaos to be avoided by all sane Asians.
One of my friends from China asked me how much of the federal debt was owed by the government to itself. I had to check. The answer is just less than a third, since various agencies like the Social Security Trust Fund are major holders of U.S. Treasuries.
"So," he mused, "Congress just voted not to default on the debt the government owes itself?" I had to admit that was correct. "And how much of the federal debt is owed by the government to the American people?" More checking. The answer is that just more than a third is owed to U.S. citizens and the banks and pension funds that manage their savings.
"So the will of the people was that it would be better not to default on the government's debt to--the people?" I couldn't deny it.
Readers who enjoy arithmetic can now answer a further question: what proportion of the federal debt is owed to foreigners? The answer is just less than a third. If you exclude the part of the debt the government owes to itself, the figure is 46 percent--nearly half. But my Chinese friend didn't need me to tell him that. Everyone here knows that the United States is in hock to the rest of the world and that China is its No. 1 creditor.
According to official figures, mainland China holds $1.1 …