Home Forums Hunting & Shooting Hunter's Campfire What if China called in US debt? -

From the Heritage Foundation

Further, China is not America�s banker, as many people believe. President Obama�s stimulus package was bad policy, but the notion that China is now funding our economy as a result is a fallacy.

7% is still a lot of money though.

Why China is Not an Economic Threat to the United States

As I understannd it, we sell our debts as bonds with a maturity date. So it's not like China could call all our debt at once or anything - right? All they can do is wait for the maturity date.

Yep.

They can turn around and sell them on the open market, but they cannot force a "call".

You got me there. I keep hearing that China owns us...they could call in our debt....blah, blah, blah.

For me, this article just refutes that notion ....private property holdings notwithstanding.

Also, I was trying to find it, but I'd heard that part of trading tariffs to China included them paying some of the interest on the National Debt.

Anyone out there know if that's true or not?

One word.
Taiwan
They want it

The can't call the debt which if they could would be a bad thing. To us (I believe) the worse thing will happen when they refuse to buy it to begin with. The morons in DC will just take more - rather than cut spending.

My God, is this what passes for an informative article at the Heritage Foundation?

I like how they mention that China grows at the expense of others but offer up no solutions... hell they don't even admit that this is a problem let alone that action should be taken to change course.

Fact is America is the richest country on the planet but we are bleeding capital like a stuck hawg. Real capital. Human expertise, industrial might, manufacturing capacity, supply chains. The stuff that takes raw materials and changes it into the products that make 21st century life possible.

China practices trade as a zero sum gain. They tilt the playing field in ways that put American workers at a distinct disadvantage. Ways that are considered unethical and harmful by all trade groups. This is a problem. It is THE problem that brought America to the brink of disaster and has China glowing red hot and ready to explode like a Roman candle.

Chronic unbalanced trade is a dynasty breaker, an empire ender. It ends in poverty, bankruptcy, and tears. In this respect Barack Obama is more of the same complacent, free trading, psuedo-libertarian idiocy that we have grown accustomed to in the last few decades.

I'd like to have the chance once in my lifetime to vote for an America first candidate.

Will

Exactly, and well said.

Feeling feisty this afternoon. :p

And watching WVU get spanked on national TV by St. Johns ain't helping me any, I can tell you that.

Will

It's not that China alone could cause a "run" on the FRN$, it's that they could precipitate a run by all holder's as they scramble to get out before they lose all purchasing power. A self feeding cycle.

The other problem becomes the lack of purchasers on future sales. If the largest purchasers such as the Chinese and Japanese refuse to buy any more of our paper-which they seem to be doing-who will? The Federal Reserve. That's monetization, and that is highly inflationary.

The reason that we haven't seen the results of the current monetization as price inflation across the board is because the Fed is paying the banks interest to keep the money as excess reserves on account at the Fed, and the multiplier effect hasn't occurred. When this ends, and the banks start to put this money into circulation looking for higher yield, that's when the game becomes interesting. If the Fed tries to "soak up" or buy back this excess liquidity, it must sell the collateral which it has taken in to do this. Since most of the collateral is FNM/FRE mortgage bonds of questionable value, this may be problematic. The inability to get 100% of their "worth" on the market could cause a Fed insolvency crisis.

It's a Scylla and Charybdis moment for the Fed, and our financial system, with no good options.

Good points Mike.

Doug Noland has had some wonderful commentary the last few months on monetary flows and how the actions of different sovereign banks is distorting these global economies. From what I can read we have an amazing amount of debt centered in short term treasuries. Maybe as much as 50% rolling over every 3 to 5 years. How to step off this bat out of hell without crashing is on a lot of minds nowadays. As it stands right now China has stopped buying but the Fed has freed up others to buy by taking MBS and other frozen assets off their hands. Often at horribly overpriced levels.

That is supposed to end in the coming months. I am unconvinced. I think you will see the agencies have to step in and buy practically all MBS to keep the economy from imploding again.

Long winded way of saying that there is a hell of a lot that can go wrong when you are addicted to debt, have a quick turnover time period on huge debt levels, and cannot really afford to pay realistic interest rates on it.

The forces of deflation and inflation are building across the board. 2 1/2 years in and we have done nothing but stopper the dam on both. I don't know how this ends TBH. :p

Will

It will not end well. All of this big talk the Fed is making about removing support from the MBS market is worth doodly squat.

As a matter of fact, the WaPo had a story yesterday that quoted Fed officials as backpedaling on their end to MBS purchases on 31Mar, and stating that "market conditions" could influence that decision.

I'm sure that it will. QE to infinity is the plan, as they have no other choice unless they're willing to crater the entire economy overnight. I'm not saying that I agree with them, as IMO all they're doing is postponing the inevitable and destroying the currency while doing so, but from their viewpoint they have no other options.

If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem. J. Paul Getty

Rather than fret about what Red China might do, ask yourself: Who has whom by the ears?

Just some thoughts.

Forget it, ain't gonna happen.....

China has been dumping dollars by buying oil, gas, gold, basic materials etc....

They are using dollars for all of these deals, not their currency....get it ?????

The last thing they want is to tank the dollar. They are on a spending spree using dollars.

Pretty slick eh ? They get to dump dollars without tanking the dollars value.

Watch what happens.....India front ran them when the IMF wanted to sell 200 tons of gold at $1040.

The Chinese were PO'd and no doubt want to save face by buying the next 200 ton sale at that price or better.

Why else do you think they let the price of gold fall ? Yes, you heard that right, they are in control of the price of gold, not the CRIMEX swindlers.....

Wach what happens to the price of gold when the next 200 ton IMF gold sale is announced.......

There is a floor on the price of gold, and the Chinese control it.

Later,

Tony

Not if the bank can use that $100 Million as collateral to buy hard assets that it needs. The Chinese have been using their US Treasury reserves to purchase mines and other commodities that they need to keep their infrastructure build out going. They have been reducing dramatically their purchase of US debt instruments. The lack of other buyers has forced the Fed to become the purchaser of last resort, especially since the politicians in DC cannot seem to get their fiscal house under some sort of control.

The other thing to consider would be that the effect of the ChiComs unloading their Treasury holdings might hurt their reserves and their central bank, but would have minimal effect on their real economy. Underestimating their willingness to sacrifice and endure pain for the achievement of their national goals has and will cost the USA much. It already has if you consider the loss of our manufacturing base to them to be significant. I do.

Right on! Combine that with China and Japan dumping their holdings and you have the US as we know it turning belly up!

That's the problem. The FR, and a lot of major corporations don't give a damn about America. They have no allegiance other than to the money they suck out of our country. No matter who you elect, they will be ground down to a subservient nub, paid off, and silenced.

you would also have the generals and the millionaire new class in China going belly up, which is definitely not their national goal. nor is damaging their best customer, without whom their manufacturing sector tanks.

which is why talk about China dumping its US debt pretty far fetched.

We're only 18% of their total export market, and since the downturn we've stopped importing quite a bit, thus their reluctance to finance our debts-the end of mercantilism, as it were.

They are in a maximum effort to encourage their middle class, who number 330 million, to increase their consumption, and it seems to be working. They are also increasing their trade agreements with other countries and have replaced us as a major trade partner with countries such as Brazil and Saudi Arabia. They import more oil from the Saudi's than we do.

To make a blanket statement that they won't unload our debt because they need us is to ignore these major shifts in trade flows and policy. I think it also underestimates just how much pain that they are willing to endure in order to eliminate our dominance both economically and militarily when they feel the need to do so. When our usefulness as a market and a source of technology ends, so will the need to continue both holding and buying our debt. I think we're about there.

so you're suggesting that they'd deliberately trash 18% of their export sector for...what, spite? surely not.


nor would the nomeklatura deeply and personally invested in the US economy do any such thing.