Washington, DC - Senator Hillary Rodham Clinton today called for action to address the growing vulnerability to the US economy from our increasing foreign-held debt citing that foreign nations now hold nearly half or more than $2.2 trillion of all public debt with China and Japan holding nearly $1 trillion. In remarks on the floor of the Senate and in a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, Senator Clinton underscored that yesterday's stock market losses, the biggest point loss since September 11th, 2001, should be a wake-up call of the risk to our economy of the continuing erosion of our economic sovereignty.

"When it comes to the fiscal recklessness and economic fatalism of the current administration, the writing might not be on the wall but yesterday the writing was on the Big Board. The economic policies of the last six years have contributed to an erosion of US economic sovereignty and have made us more dependent on the economic decisions of other nations," said Senator Clinton. "We need to take steps to restore fiscal responsibility and sound economic policies based on the facts not ideology," said Senator Clinton in remarks on the Senate floor.

The following is the text of Senator Clinton's letter to Secretary Paulson and Chairman Bernanke:


The Honorable Henry Paulson
Secretary
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20551

The Honorable Ben S. Bernanke
Chairman
Federal Reserve Board
20th Street and Constitution Avenue, NW
Washington, D.C. 20220

Dear Mr. Secretary and Chairman Bernanke:

It is with great concern that I witnessed the recent volatility in the global markets and the undeniable impact it had on U.S. markets. Indeed, I believe that the economic policies of the last six years have contributed to an erosion of U.S. economic sovereignty and have made us more dependent on the economic decisions of other nations. Moreover, I believe that action should be taken now to address some of the underlying issues that contributed to yesterday's market disruption.

Markets to a certain degree will always be volatile, and to a great extent we are fortunate that our domestic markets are deep enough to absorb certain shocks. But what happened yesterday underscores the exposure of our economy to economic developments in countries like China. As we have been running trade and budget deficits, they have been buying our debt and in essence becoming our banker. While the President has touted recent improvements in the overall budget deficit picture, it is undeniable that the exponential growth of foreign debt in the last six years has undermined our economic standing. We have to curb these deficits and ensure foreign governments don't own too much of our public debt and take steps to ensure that our economic well being is soundly in our own hands.

I have long argued that a great source of vulnerability is the fact that other countries, including China, own so much of our debt. Today, foreign nations according to the most recent Treasury statistics hold over $2.2 trillion or 44% of all publicly held United States (U.S.) debt with Japan and China alone holding nearly $1 trillion. In essence, 16% of our entire economy is being loaned to us by the Central Banks of other nations. Having so much debt owned by other countries can be economically unsound. Yesterday it was the sell off of foreign stocks that had reverberations in U.S. markets. But if China or Japan made a decision to decrease their massive holdings of U.S. dollars, there could be a currency crisis and the U.S. would have to raise interest rates and invite conditions for a recession. While it can and will be debated whether yesterday's market disruption was just a blip or a larger indicator of our economy's vulnerabilities, it is clear that interdependence between our economy and that of other nations can pose a risk if we do not pursue smart policies. Precipitous decisions by any country with our debt could create much graver economic problems than what we saw yesterday. The writing may not be on the wall, but yesterday, the writing was on the Big Board.

In years past, I have worked with other members of Congress who share many of the same concerns on this issue. For example, during the last session of Congress I supported legislation by Senator Dorgan and then Congressman Cardin that sounds an alarm bell when US foreign owned debt reaches 25 percent of GDP or the trade deficit reaches 5% of GDP. It would require the Administration to develop a plan of action to address these conditions, and report their findings to Congress. At the very least this proposal would compel our government to deal with these economic issues while they are problems and before they become crises. I believe that proposals like these need to be discussed in order to put our economic house in order as we can too easily be held hostage to the economic decisions being made in Beijing, Shanghai and Tokyo.

Thank you for your attention to this matter, and I hope that we will have an opportunity to discuss these issues.

Sincerely yours,

Hillary Rodham Clinton