4 ms·

China sitting on over $1 trillion in US debt doesn’t give them leverage over the US, it gives the US leverage over China.

tandr 6y ago
Would you be kind and explain how this is works? (my suspicion is that it is akin "if you owe bank a $10000, you have a problem. If you owe bank a $100mil, bank has a problem", but please don't let this idea influence your answer) Thank you.
- tyre 6y ago
  China has taken on the risk of us paying the $1tn. If they were to get incredibly aggressive, for example starting a war, then we could clear the debt. We just don't pay. $1tn is a lot of money to any country, even one as large as China. Defaulting on our debt would be a huge fucking deal for us as well, but if the stakes were high enough others would understand that we couldn't pay someone money while at war.
  - hertzrat 6y ago
    Both nations are nuclear armed. Creating a nuclear winter over a debt is a sketchy plan
    - mywittyname 6y ago
      Especially such in small amount. It sounds like a lot of money, but the US War in Iraq tallied over a trillion, with Afghanistan matching that amount. The CARES Act is estimated to have cost $2 trillion. Countries are not going to go to war over such a petty amount of money. The costs of such a war would be 100x that amount, easily.
      - hertzrat 6y ago
        The cost of two first world nuclear armed nations going to war can't really be measured in dollars. Even if nukes didn't come into play, I'm listening to Dan Carlin's Hardcore History episodes on the War in the Pacific right now. The death tolls and misery is just staggering, and he hasn't even gotten to the firebombing where I'm at yet.
- Smithalicious 6y ago
  If I loan my girlfriend a hoodie and then break up with her, I'm not getting that hoodie back
- eitland 6y ago
  There's a saying at least here in Norway that goes along tje lines of: "If you owe the bank a 5 million NOK and cannot pay then you have a problem. If however you owe the bank 500 million NOK and cannot pay then the bank has a problem."
  - GauntletWizard 6y ago
    This one is just as common in the US, precise numbers and currency aside.
newdude116 6y ago
Ah. Would you mind explaining how? I think that this is a myth that this gives you leverage.
DarthGhandi 6y ago
This isn't right, there's incentive for both parties to behave but anytime China can sell treasuries on the open market for below what they are worth driving up yields dramatically. If the US tries to issue more bonds they'll have to match market rates or buyers will simply go to the secondary markets. You're suggesting that the US could intentionally devalue it's own notes to financially hurt China, but that would also devastate every other holder as well as itself. Basically economic scorched Earth policy that even a madman wouldn't consider.
deleted 6y ago
[deleted]
insert_coin 6y ago
Nonsense. If China dumps those bonds tomorrow the US dollar would collapse instantly. China would feel some pain of course, but their internal economy is not directly tied to international markets so they can handle it way better.
- mywittyname 6y ago
  The Federal reserve would buy them all up at the now discounted rate. Now China would be stuck selling assets (t-bonds) at a loss, and in return, they get another asset (USD) which now has a suppressed value. And since low USD makes American goods relatively cheaper, it will hurt the Chinese production economy and help the American one. Also, China could have difficulty deploying those USDs if the US Government imposes sanctions or other prohibitions on purchasing or capital inflow to the US.
  - insert_coin 6y ago
    > The Federal reserve would buy them all up at the now discounted rate. Further proving to anyone else holding bonds how worthless dollars are.
    - mywittyname 6y ago
      T-bonds and dollars are basically the same thing. A t-bond is basically a bank account with the US Treasury saying that you gave them USD and that you're entitled to that USD back, with interest, at some later date. Saying China "dumping" t-bonds is bad for America is like saying that a person "dumping" CDs is bad for a bank. The seller is the one getting hosed on the deal, because they are forced to sell at a discount (otherwise, it wouldn't constitute dumping). The bank / treasury already knows they need to pay back the money at some point. Also, a trillion dollars in t-bonds isn't that much. The Fed has purchased hundreds of billion on several occasions without much fanfare. A trillion bucks won't do much more than trigger some NYTimes articles on the subject.
      - insert_coin 6y ago

tandr 6y ago

Would you be kind and explain how this is works? (my suspicion is that it is akin "if you owe bank a $10000, you have a problem. If you owe bank a $100mil, bank has a problem", but please don't let this idea influence your answer) Thank you.

tyre 6y ago
China has taken on the risk of us paying the $1tn. If they were to get incredibly aggressive, for example starting a war, then we could clear the debt. We just don't pay. $1tn is a lot of money to any country, even one as large as China. Defaulting on our debt would be a huge fucking deal for us as well, but if the stakes were high enough others would understand that we couldn't pay someone money while at war.
- hertzrat 6y ago
  Both nations are nuclear armed. Creating a nuclear winter over a debt is a sketchy plan
  - mywittyname 6y ago
    Especially such in small amount. It sounds like a lot of money, but the US War in Iraq tallied over a trillion, with Afghanistan matching that amount. The CARES Act is estimated to have cost $2 trillion. Countries are not going to go to war over such a petty amount of money. The costs of such a war would be 100x that amount, easily.
    - hertzrat 6y ago
      The cost of two first world nuclear armed nations going to war can't really be measured in dollars. Even if nukes didn't come into play, I'm listening to Dan Carlin's Hardcore History episodes on the War in the Pacific right now. The death tolls and misery is just staggering, and he hasn't even gotten to the firebombing where I'm at yet.
Smithalicious 6y ago
If I loan my girlfriend a hoodie and then break up with her, I'm not getting that hoodie back
eitland 6y ago
There's a saying at least here in Norway that goes along tje lines of: "If you owe the bank a 5 million NOK and cannot pay then you have a problem. If however you owe the bank 500 million NOK and cannot pay then the bank has a problem."
- GauntletWizard 6y ago
  This one is just as common in the US, precise numbers and currency aside.

newdude116 6y ago

Ah. Would you mind explaining how? I think that this is a myth that this gives you leverage.

DarthGhandi 6y ago

This isn't right, there's incentive for both parties to behave but anytime China can sell treasuries on the open market for below what they are worth driving up yields dramatically. If the US tries to issue more bonds they'll have to match market rates or buyers will simply go to the secondary markets. You're suggesting that the US could intentionally devalue it's own notes to financially hurt China, but that would also devastate every other holder as well as itself. Basically economic scorched Earth policy that even a madman wouldn't consider.

deleted 6y ago

[deleted]

insert_coin 6y ago

Nonsense. If China dumps those bonds tomorrow the US dollar would collapse instantly. China would feel some pain of course, but their internal economy is not directly tied to international markets so they can handle it way better.

mywittyname 6y ago
The Federal reserve would buy them all up at the now discounted rate. Now China would be stuck selling assets (t-bonds) at a loss, and in return, they get another asset (USD) which now has a suppressed value. And since low USD makes American goods relatively cheaper, it will hurt the Chinese production economy and help the American one. Also, China could have difficulty deploying those USDs if the US Government imposes sanctions or other prohibitions on purchasing or capital inflow to the US.
- insert_coin 6y ago
  > The Federal reserve would buy them all up at the now discounted rate. Further proving to anyone else holding bonds how worthless dollars are.
  - mywittyname 6y ago
    T-bonds and dollars are basically the same thing. A t-bond is basically a bank account with the US Treasury saying that you gave them USD and that you're entitled to that USD back, with interest, at some later date. Saying China "dumping" t-bonds is bad for America is like saying that a person "dumping" CDs is bad for a bank. The seller is the one getting hosed on the deal, because they are forced to sell at a discount (otherwise, it wouldn't constitute dumping). The bank / treasury already knows they need to pay back the money at some point. Also, a trillion dollars in t-bonds isn't that much. The Fed has purchased hundreds of billion on several occasions without much fanfare. A trillion bucks won't do much more than trigger some NYTimes articles on the subject.
    - insert_coin 6y ago