Two parts to this hypothetical:
Pretend China gives next week as a deadline of when we have to pay them back. We don’t have the money, so we’ll have to liquidate assets. What do you think would be liquidated first, second, etc.?
Pretend we have no assets to liquidate. What do you think would happen?
- Pretend China gives next week as a deadline of when we have to pay them back. We don’t have the money, so we’ll have to liquidate assets. What do you think would be liquidated first, second, etc.?
China the buruacracy doesn’t buy our t-bills, Chinese individuals who hold dollars do. These t-bills do have to be paid back, but they are not all bought and/or sold simultaneously. What the U.S. government will usually do is just sell the debt to someone else and pay off old t-bills with that money, or what they call “rolling over”.
- Pretend we have no assets to liquidate. What do you think would happen?
I would venture a guess that the Federal Reserve would buy government debt in this case, before forcing the government to declare bankruptcy.
Massive if not hyper-inflation will most likely occur destroying the American economy. After an economic collapse, I would hope we would serve as the prime example of what not to do and pretty much force the hand of foreign politicians to go in the oppossite direction (more limited government etc).
“China the buruacracy doesn’t buy our t-bills, Chinese individuals who hold dollars do.”
Are you saying that there are no US government securities on the balance sheet of “The People’s Bank of China”? Somehow, I find that hard to believe.
I also find that hard to believe. I assumed that the Chinese government was buying our debt while it was the individuals in China who were currently purchasing our real estate at such cheap prices.
Hey, guys,
Thank you for the interesting discussion.
I am DAYONG WANG, from China. I am very interested in the thread and can I join the discussion?
Though it was claimed a hypothetical subject, I still have two questions, as a Chinese citizen:
Although I think our government (China) should spend the money to improve life, health and education etc for its citizens, in fact, it holds US T-Bills more and more. Why does this happen? Based on US dollar’s status of international currency and US government’s reputation, US T-Bills is still attractive investment field for those foreigh investors, including China government and individuals.
So, no worries, China government and individuals will hold US T-Bills, in my opinion.
I don’t know what are the real estate you mentioned. On the contrary, I think China government and Chinese companies paid more than they got. For example, the iron ore importing into China, The iron ore price has continued to go up since 2003, by 70% - 100% every year. Because the iron ore suppliers know exactly what China need, they raised the price, while Chinese companies have to bear, even without any margin to bargain.
Of course you can join the discussion. Welcome to the thread!
I understand that Treasury bills are still attractive investments, but I’m just worried that the Chinese government will feel uneasy considering that we keep digging ourselves further and further into debt. This, of course, was my worry before I realized that individuals also hold Treasury bill investments, which slightly lessens my worry, but it still exists. Since President Obama has basically promised at least $1 trillion in debt for each year he’s in office, I don’t want investors to stop buying the debt or force us to pay it back quicker than we can.
I assume that China is buying real estate at cheap prices because they’re purchasing land that wouldn’t have sold at all if they hadn’t bought it. I just meant cheap prices in comparison to how much the property would be worth in a good economy. I didn’t mean to have any emphasis on that term.
If you wouldn’t mind, I have a question for you also. Considering that I have never been to China, can you tell me a little bit what it’s like there in society? I don’t mean like culture or anything like that, but for the average, “middle-class” citizen, what do you like and dislike about the society/economy there?
The amount of t-bills “China” holds is roughly similar to the size of the American trade deficit with China. While I don’t doubt that the Chinese central bank buys t-bills using dollars they’ve bought with yuan, I’m willing to bet that a lot of the value of t-bills is held by individuals. It would be interesting to see a statistic on this.
The following link shows who the foreign holders are, but it doesn’t really break it down further than that.
http://www.ustreas.gov/tic/mfh.txt
Also, you can go to the following and click “Ownership of Federal Securities” to open the Microsoft Word file, and it breaks down what is held by private investors.
If only it were possible.
"While I don’t doubt that the Chinese central bank buys t-bills using dollars they’ve bought with yuan, I’m willing to bet that a lot of the value of t-bills is held by individuals. "
One must look at the entire Chinese banking system. My hunch is that the majority of US bonds are being held by State owned Chinese banks.
1.1 China will stop buying our freshly printed paper US Bonds when the amount of title to US assets available for sale to redeem our freshly printed paper US Bonds starts to become limited. Some sources estimate that the title to 25% of privately owned US located assets are now foreign owned (http://economyincrisis.org/) and this percentage is increasing rapidly. Our payments for foreign oil, foreign manufactured assemblies, foreign parts, foreign manufactured sub-assemblies and foreign raw material are paid for in essentially this same manner. What will we do when we have nothing of value to sell to the foreigners who work to make the things that we consume? I do not believe that they will work for free.