Chinese Premier Wen Jiabao expressed about the safety of its loans to the United States.

AP quotes the premier of China saying, "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried." Obviously, they should be concerned in view of the current administration's approach to deficit spending.

However, China did not enter into the loans out of the goodness of their hearts or simply as creditors. Much of the loans essentially financed the development of Chinese industry. Ultimately, the loans provided for the purchases of massive Chinese exports that fueled the Chinese economy's growth. Furthermore, China considered the USA to be the safest and best place to put its money.

The AP report also quotes an economist's reaction to the statement: "'They are worried about forever-rising deficits, which may devalue Treasuries by pushing interest rates higher,' said JP Morgan economist Frank Gong. 'Inside China there has been a lot of debate about whether they should continue to buy Treasuries.'"

The Obama administration needs to listen very carefully to this. They cannot continue to propose budgets that raise deficits forever. At some point creditors finally stop financing new expenditures or require ever increasing interest to offset the increasing risk of default.

Of course, an old saying about banks applies here. "If you borrow a little, the bank owns you. If you borrow a lot, you own the bank." The AP report indicates that "Analysts estimate that nearly half of China's $2 trillion in currency reserves are in U.S. Treasuries and notes issued by other government-affiliated agencies."

With such a large exposure to American debt instruments, China could seriously damage its economy if it took precipitous action.