The Truth-O-Meter Says:
Obama

We're borrowing money from China and Saudi Arabia "to finance this war" in Iraq.

Barack Obama on Tuesday, May 13th, 2008 in Cape Girardeau, Mo.

Other countries, too

The presidential candidates are fond of talking about how we like to borrow from Peter to pay Paul, and how bad this is. ( Read our story on this phenomenon here .)

"We took out a credit card from the bank of China and the bank of Saudi in the name of our kids, borrowing money to finance this war," Obama said on the campaign trail in May 2008. "You're going to be paying them interest for generations to come -- that makes us weaker."

Obama's correct in his implication that the U.S. is borrowing money to fund the war, because the U.S. government is running budget deficits, meaning the government is spending more money than it brings in through taxes and fees.

Of course, the government cannot just print extra paper money when it needs to spend or it would devalue U.S. currency. Instead, it issues, or more precisely sells, U.S. Treasury securities, which are simply IOUs that guarantee repayment with interest. Many U.S. citizens buy them, often in the form of U.S. bonds, but so do many foreign countries, who see them as a safe, stable investment.

The number one holder of U.S. Treasury securities among foreign countries isn't China or Saudi Arabia. It's actually Japan. China is number two, the United Kingdom is number three, and a group of oil-producing countries (which includes Saudi Arabia) is number four.

So, here's the problem with Obama's argument. And with McCain's. And with Clinton's, while we're at it. All have made similar statements. The bonds the government sells are not program-specific so there is no direct relationship between the holder of bonds and any particular expense of the U.S. government. Obama could have easily said that Japan or the United Kingdom is lending us money to pay for the war, and that would have been just as true as what he did say.

So Obama is correct in his point that the government is spending borrowed money, and that some of our lenders include China and Saudi Arabia. But the lenders also include countries that we think of as friends and allies. By naming only lending nations that might alarm voters, Obama is distorting the picture somewhat. So for this reason, we find his statement Half True.

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About this statement:

Published: Friday, June 20th, 2008 at 12:00 a.m.

Subjects: Federal Budget

Sources:

Department of Treasury, Major foreign holders of Treasury securities , April 2008

Department of Commerce, International balance of payments

New York Times, A Map of the Oil World, Nov. 6, 2007

Interview with Barry Bosworth of the Brookings Institution.

Interview with Dean Baker of the Center for Economic and Policy Research.

Interview with Jerry Taylor of the Cato Institute.

Written by: Angie Drobnic Holan
Researched by: Adriel Bettelheim, Angie Drobnic Holan
Edited by: Scott Montgomery

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