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Take Comfort From Scary Debt Numbers

Eye-popping data figures about U.S. population and China's reserves predict growing incomes.
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This column was originally published on RealMoney on Oct. 24 at 1:11 p.m. EDT. It's being republished as a bonus for readers.

Your share of the tab -- same as mine -- is $3,333; ditto for every member of your family.

This number falls out of the facts, reported last week, that the population resident in the U.S. passed 300 million on Oct. 17, and that Chinese foreign-exchange reserves are reaching $1 trillion U.S. equivalent.

Only about 70% of that is estimated to be invested in U.S. securities, so the number I cited as your share is significantly overstated.

Sorry if I shocked you.

Round numbers are more eye-catching than their lumpy, inelegant cousins, even if not necessarily more meaningful.

This particular set is interesting in many ways.

That $3,333 tab is equivalent to roughly 7.5% of per capita GDP, or about 42% of currently outstanding consumer indebtedness or, by coincidence, about the same share of U.S. federal government revenue.

We could get out from under that Chinese debt overhang -- our share and, sportingly, the rest of the world's -- by increasing our per-person bank borrowings by two-fifths, or amplifying federal government receipts by that same factor.

If you know how to do that without using a forbidden three-letter word, call your favorite political candidate.

The U.S. resident population is growing at about 1% per year, while Chinese foreign-exchange reserves have compounded at 30% per year during this decade.

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Maybe we'd better let the rest of the world look out for itself. (See U.S. Residents chart below.)

These facts are somewhat less in-your-face than Kim Jong-Il's nuclear bomb test, but like that test they reinforce, for the Chinese as well as ourselves, that we're both in this together.

Fortunately, the latest indications are that China's leaders are beginning to move in the direction of U.S. positions regarding North Korea.

On the indebtedness question, China's leaders have long understood, probably better than our Congress, the mutual benefit of managing the relationship so as not to upset stability. (See China's Reserves chart below.)

U.S. Residents Now Number, Roundly, 300 Million

$1 Trillion Is the Big Round Number of China's Reserves

It is not possible to interpret debt without relating it to income; your mortgage probably doesn't look so big to Bill Gates. The statistics on U.S. indebtedness -- consumer borrowings, federal deficits and debt, U.S. international net debt -- are large and frightening on their face. But when you consider that debt is priced regularly in forward-looking financial markets, you must conclude that it is debt that predicts income and not the other way around. (Predicts, not determines: A debt deflationary collapse may be unlikely in a modern economy, but it's hardly impossible.)

So those big numbers hanging over our heads can be taken as predictions that our incomes will grow, in terms real or inflationary, to be able to service our indebtedness in much the same way that most of us have been able to handle imposing mortgages. These round numbers underscore the long and mutually profitable relationship becoming ever more evident between China and the U.S.

Jim Griffin is economic consultant and portfolio adviser to ING Investment Management and its Hartford-based unit, ING Aeltus, which manages institutional investment accounts and acts as adviser to the ING Mutual Funds. His commentary on the financial markets is based upon information thought to be reliable and is not meant as investment advice. While Griffin cannot provide investment advice or recommendations, he appreciates your feedback;

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