China Losing Confidence in the U.S. Dollar?

This is a rush transcript from "On the Record," June 9, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Congressman Mark Kirk just returned from China, and he says the Chinese told him they are worried about the U.S. economy. But that's not exactly what our Treasury secretary, Tim Geithner, says after his recent trip to China. Secretary Geithner says the Chinese expressed to him justifiable confidence in our economy. So which is it? Are the Chinese flipped out about our exploding debt or not?

Illinois congressman Mark Kirk joins us live in Washington. Nice to see you, Congressman.


VAN SUSTEREN: OK, you're told one thing about our economy, and apparently, the Treasury secretary is told another.

KIRK: There was an honesty moment when Secretary Geithner was in Beijing University giving a speech. He said, Your investments in a trillion dollars worth of U.S. debt are secure, and the audience laughed at him. It's very un-Chinese to do, to embarrass a speaker in public, but I think it reflected a growing concern in Beijing.

VAN SUSTEREN: And I guess we should point out the reason why they're concerned, the Chinese, why they care so much, is because they hold all -- a significant portion of our debt.

KIRK: Right. China has leant about $300 billion to the U.S. for Fannie Mae and Freddie Mac -- they're very worried about that -- another $700 billion in Treasury bills. And they're particularly worried about the Fed's new policy of buying Treasury debt because they're worried that one part of the federal government is buying another part of the federal government's debt. Sounds like printing money, and that means that if you hold dollar-denominated debt, all those investments will be worth less because you'll be repaid in printed dollars.

VAN SUSTEREN: What would be the incentive for Secretary Geithner to get it so wrong or to miss that sort of honesty point? I mean, what -- what's in it for him to come back here and say, The Chinese are fine on our debt. They want to -- you know, they don't -- they're not worried at all about our economy.

KIRK: What Secretary Geithner reflected was what the public statements of the Chinese government was, which is they are afraid that if they talk down the dollar too much, their own trillion-dollar investment will be cheapened. But privately, the key concern is, Should we buy any more U.S. debt? And over time, what's happening is China is beginning to cancel Congress's credit card, doesn't want to lend much more money to the United States, and especially is worried about the Fed's policy of printing money to buy new debt.

VAN SUSTEREN: So it isn't that the secretary is deceitful or sugarcoating, it's that he's naive and was hoodwinked and wasn't there when they were talking candidly to you? Is that the story?

KIRK: It's a common thing in Asia that you hear one thing in public and then you may hear some more direct concerns in private. And you have to listen to that because, unfortunately, China has become America's biggest creditor, and if the Congress's plans go forward, we will borrow even more to spend on additional bills, a transportation bill, a health care bill, and our regular practice of waiving our budget constraints towards the end of the year.

VAN SUSTEREN: If -- have you pulled the secretary aside and said, Look, you know, when you're out of the room, they're telling me they're really worried about our -- about our situation?

KIRK: I'm fairly sure that he heard the same thing in private and...

VAN SUSTEREN: So why is -- so why would he make -- why would he say something else, the "justifiable confidence"? I mean, why -- why would he tell us something different?

KIRK: Well, because both parties don't want to create a panic, but there is growing concern that the United States may not borrow $1.8 trillion, it may borrow even more, especially if it passes additional legislation on the Speaker's table, and that begins to look unsustainable. Also...

VAN SUSTEREN: Well, why would they lend at that point? I mean -- I mean, if our credit is so lousy...

KIRK: Right.

VAN SUSTEREN: ... if this is getting so grim, why in the world would the Chinese want to pick up any more of our debt? I wouldn't!

KIRK: I think...

VAN SUSTEREN: I mean -- I mean, if I were going to lend someone money, I'd want to say, you know, Show me your cards. What have you got?

MOORE: Well, they already are beginning to hedge. I think they expect quite a bit of inflation in the United States next year. So they made a major investment. They funded a second strategic petroleum reserve, and they plan to buy $80 billion worth of gold. That's two Fort Knoxes. Both of those investments only make sense if you expect significant dollar inflation.

VAN SUSTEREN: And indeed, they may -- they may expect that. So in terms of -- does it change policy on whether or not the U.S. believes that the -- you know, your version of what you were told or the secretary -- what the secretary is saying?

KIRK: Well, this is a growing concern over the creditworthiness and value of previous U.S. bonds which have been sold. And we've seen other sovereign borrowers, Germany and the United Kingdom, fail in debt auctions. They were unable to borrow money at the rates they wished. Also, Fitch and Standard and Poor's have now issued a warning to the British government, You've borrowed too much, and we're going to strip your AAA credit rating from you if you continue this path. That's the same path we are on. President Obama is right when he says we are out of money.

VAN SUSTEREN: Well, I think when you start spending more than you have, you're out of money to begin with. I mean, that doesn't -- you know, that's not a huge surprise to anybody.

KIRK: That's right.

VAN SUSTEREN: Congressman, thank you.

KIRK: Thank you.

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