[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 1028 Introduced in Senate (IS)]

112th CONGRESS
  1st Session
                                S. 1028

   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

                              May 19, 2011

  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. 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. 3. 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, 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) On February 16, 2011, Admiral Mike Mullen, Chairman of 
        the Joint Chiefs of Staff, testified before the Committee on 
        Armed Services of the Senate: ``Indeed, I believe that our debt 
        is the greatest threat to our national security. If we as a 
        country do not address our fiscal imbalances in the near-term, 
        our national power will erode, and the costs to our ability to 
        maintain and sustain influence could be great.''.
            (4) 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.
            (5) The Federal debt stands at more than 
        $14,345,000,000,000.
            (6) According to a report issued by the Department of the 
        Treasury on May 16, 2011, entitled ``Major Foreign Holders of 
        Treasury Securities'', foreign holdings of United States 
        Treasury securities stood at more than $3,175,000,000,000 at 
        the end of March 2011. The People's Republic of China was the 
        single largest holder with holdings of more than 
        $1,144,000,000,000.
            (7) 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 28, 2011, entitled 
        ``Preliminary Report on Foreign Holdings of U.S. Securities At 
        End-June 2010'', assigns $732,000,000,000 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.
            (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 a September 2008 Council on Foreign 
        Relations report entitled ``Sovereign Wealth and Sovereign 
        Power,'' ``. . . political might is often linked to financial 
        might, and a debtor's capacity to project military power hinges 
        on the support of its creditors . . . The United States' main 
        sources of financing are not allies.''. The report goes on to 
        argue that, ``the United States' current reliance on other 
        governments for financing represents an underappreciated 
        strategic vulnerability.''.
            (12) In recent years, Chinese military 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 People's Liberation Army (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.''.
            (13) The PLA has also referenced the concept of nonmilitary 
        aspects of deterrence in written statements. A PLA textbook, 
        ``The Science of Military Strategy'', observes that 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.''.
            (14) According to a May 16, 2011, report by ABC News, a 
        congressional delegation of 10 United States Senators visited 
        China in April 2011, and met with Chinese government officials. 
        The news report indicates that, during one meeting, the 
        Senators were reprimanded by a Chinese official regarding the 
        mounting United States Federal debt.
            (15) A February 7, 2010, report by Defense News suggests 
        that China's extensive holdings of United States Government 
        securities have already directly influenced United States 
        national security policy. According to an unnamed Pentagon 
        official, Obama Administration officials softened a draft of a 
        key national security document in order to avoid ``harsh 
        words'' that ``might upset Chinese officials at a time when the 
        United States and China are economically intertwined.''. The 
        news report indicates that these officials ``deleted several 
        passages and softened others about China's military buildup''. 
        This critical document, the 2010 Quadrennial Defense Review, 
        provides an assessment of long-term threats and challenges for 
        the Nation and is intended to guide military programs, plans, 
        and budgets in the coming decades.
            (16) The United States Government pays China a substantial 
        amount of interest on China's $1,144,000,000,000 in holdings of 
        United States Government debt, and this enhances China's 
        ability to fund its own military programs.
            (17) According to a March 4, 2011, report by Xinhua, the 
        official press agency of the government of the People's 
        Republic of China, China plans to increase its 2011 military 
        budget by 12.7 percent to 601,000,000,000 yuan (the equivalent 
        of $91,500,000,000). This increase is in addition to China's 
        2010 increase in its military budget of 7.5 percent.
            (18) According to the Department of Defense's (DoD) 2010 
        report entitled ``Military and Security Developments Involving 
        the People's Republic of China,'' the DoD estimates China's 
        actual total military-related spending for 2009 to be over 
        $150,000,000,000.

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 (2)--
                    (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, 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 timeline 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.
                                 <all>