It is difficult to ignore the many voices that fret over China as the banker to the U.S. in its time of worsening debt.­ It is an easy thing to demagogue, and so lends itself to some economic scrutiny.

Despite its high levels of growth the People’s Republic of China is no place of economic miracles.­ It remains a dismal place, with average wages beneath what the U.S. enjoyed before Teddy Roosevelt was a soldier, much less president.­ China’s residents have the political freedoms of an African-American in South Carolina of about the same vintage, and it will take something like a century to close the wage gap.­ That is why China – or rather the People’s Bank of China – has chosen to purchase so much debt from the United States.­ They need to link themselves to the security of our economy.­ But, purchasing our debt, and being our banker are two different matters altogether.

The United States finances its lamentably large debt through the issuance of bonds (and similar financial instruments).­ This is a form of borrowing, but not one that is at all akin to bank borrowing.­ These bonds are sold in an open auction market and come due at an established interval.­ Ten-year bonds are the most common and, unlike a small business line of credit, cannot be called early.

The bond auction sets the interest rate American taxpayers must pay to borrow this money.­ The rates are low because our economy remains the most trustworthy in the world.­ Still, 18 cents on every dollar of taxes we pay goes to paying the interest on these bonds.­ As of the end of last year China held about $1.1 trillion in these securities, or about a quarter of the outstanding debt held by foreigners.­­ These are big numbers, even to an economist who once worked for the U.S. Air Force.­­ But what leverage does the Peoples Bank of China have over the U.S.?­ The short answer is none.­

A few pundits (possessed of more heated rhetoric than sizzling intellect) have claimed that China can simply call the debt.­ They cannot.­ They could sell the bonds, but the economists at the People’s Bank of China aren’t stupid.­ A big increase in the supply of bonds would reduce their price.­ If the People’s Bank of China wants to sell them off at a big loss, our Federal Reserve would be pleased to buy them back.­

However, it is more likely that our exploding debt will require us to pay higher rates, just like any indebted credit card holder.­

I am not a deficit hawk.­ In this column two years ago I argued the debt was not yet a problem and that we had a year or two to set ourselves on a sustainable fiscal path.­ Quite the opposite has since happened.­ The January 2011 deficit equaled the 2007 total annual deficit.­ In the end, it is the debt that threatens our national prosperity and security, not the folks who bought it.