By John W. Schoen
As millions of Americans figure out how they’re going to spend their tax rebate checks, some readers are wondering: Just where is this money coming from? Is it true we’re borrowing it from China?
I‘ve been told that the special rebate the IRS is sending out this year is funded by borrowed money, money that has been borrowed from two or three countries, including China.  Do you know where this money is being obtained?
— Kay R. Concordia, Kan.
These days, digital money flows around the world with the speed of electrons. Or at least it’s supposed to; lately, the credit crunch has slowed things down a little.
But tracing the flow of individual dollars gets complicated pretty fast. Nowhere is that more true than the money that flows into and out of the nearly $3 trillion U.S. budget. So while it’s possible that one of the dollars in your rebate check came from China, the rebate isn’t being paid directly from loans from foreign countries. Here’s where it came from:
The money spent by the federal government comes from two main sources: revenues (mainly taxes) and borrowing (mostly Treasury debt sold to the public.) The folks down at the Treasury are in charge of figuring out how much Congress and the White House overspend, and every three months they auction off enough in notes and bonds — essentially IOUs — to make up the difference. Billions of dollars worth of this paper is sold to the highest bidder.
Anyone can bid: you, me or the Chinese government. Lately, Beijing has been a big buyer of our debt paper — largely because China has lots of extra dollars we sent over there to buy cheap goods. Those dollars have to get recycled and, like most other investors, foreign governments like U.S. Treasury debt because it’s a safe pace to stash dollars. (If we borrow too much, and the dollar gets too weak, that could change.)
Japan is still the biggest foreign holder of U.S. Treasury debt ($587 billion as of January, 2008 ). China ($492 billion) comes in second, but is rapidly moving into first place: something like $90 billion of U.S. Treasury debt was sold to China in just the past 12 months. Other big holders include the U.K. ($160 billion), Brazil ($141.7 billion), and two categories the Treasury lists simply as “oil exporters” ($141 billion) and “Caribbean banking centers” ($108 billion). The list includes 22 other countries that are holding $10 billion or more.
Since Congress and the White House didn’t raise any new taxes to pay for the roughly $150 billion being spent on tax rebates and other “economic stimulus,” the government has to borrow that money; some of it likely came from China. But tax revenues and proceeds from borrowing all go into the same federal spending pot, so it’s tough to unscramble the egg. Your rebate may have been funded by Treasury debt sold to China, or someone else — or from someone else’s tax payments.
If the dollars in your tax rebate did come from China, give them a big “Welcome home!” when you get your check. They could have originally come from your wallet and traveled, after a stop in the cash register of your local Wal-Mart, all the way to China and back.
Unfortunately, we now owe interest on those dollars until the U.S. government pays back the money the Chinese government has lent us.
(Note: A special thanks to all the readers who’ve written to ask if they qualify for a rebate check. After two columns and several hundred mails, we’re going to close that file here at the Answer Desk. If you’re not sure whether you’re eligible, fill out your return, send it in and give it six weeks to eight weeks or so. Just remember to file: no return, no check.)
I received an offer from my credit card company for a 4.99 percent rate for however long it takes to pay off the amount used during the promotion. This rate is less than the rate I am being charged on a construction loan (9 percent) that I am using to remodel my home. Besides being charged a service fee of 3 percent (max $300), what other pitfalls are associated with this type of loan product? Why would I not want to use this loan as opposed to my construction loan?
— Matthew V., Fayetteville, Ark.
Since home prices began falling and the mortgage market began tightening up last year, homeowners have found it tougher to get loans to remodel. Some are now leaning more heavily on credit cards. No one likes this more than the credit card industry, which is offering all kinds of “deals” to bring in new business.
The problem, of course, is that a credit card is about the most expensive way to borrow from anyone other than Tony Soprano. To help consumers overlook that fact, many card companies offer a low “teaser rate" to get you started. A better term might be a “low rate hook,” because once you’ve borrowed the money you’re on the hook for it — even it the rate goes up. While the marketing brochure may say the rate is “good for as long as it takes to pay the loan,” you can’t really tell for sure until you read the full terms of the agreement, where the type gets a lot smaller and language gets tougher to follow.
Like everything else about credit card accounts, the terms and conditions of these "teaser rate" deals are detailed and vary from one program to the next, so it’s tough to generalize. But it’s common these days for credit card companies to take a very hard line on late payments. In some cases, the contract includes a little clause saying that the card company reserves the right to crank your rate to the maximum — as much as 30 percent — for as long as they like if you’re an hour late with a payment. Some have even taken to applying this rule to all of your bills: If you’re late with your gas bill, that’s as good as being late with your credit card.
It's a wonder the courts have allowed this kind of nonsense to continue. The whole point of contract law is that two parties agree to terms of a transaction before entering into it; the contract then becomes the means of enforcing that agreement if one party tries to weasel out of the deal. Under credit card law, however, there’s a clause that says, essentially, “We reserve the right to change these terms any time we want to. If you don’t like it, your remedy is to cancel your account.”  To do so, of course, you’ll have to pay off your balance immediately.
If you’re considering taking their offer, you need to hammer them hard on the promise to keep the rate steady until you pay it off. It’s not enough to call the customer service line; you’ll get all sorts of verbal assurances that won’t help you after they’ve jacked up your rate and then explain how sorry they are when you call to protest.
So ask to see the written conditions on their promise to hold the rate steady. If they can’t produce such a document, toss the offer in the trash where it belongs. Or you could record your calls with the customer services rep promising they won't raise your rate under any circumstances. Make sure to ask their permission first.
If they ask why, tell them it’s for “quality assurance purposes.”
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