What if China called in its debt?

Hobbes

Just curious what would happen if China called in its Debt with the US.

While the usual collapse of US currency what would happen if the US said "Feck off, we are not paying it".

I think that other countries would help out the US just to try and maintain the status quo.

Sand

Just curious what would happen if China called in its Debt with the US.

While the usual collapse of US currency what would happen if the US said "Feck off, we are not paying it".

I think that other countries would help out the US just to try and maintain the status quo.

Not in Chinas interest to call in the debt. The funny thing about trade is that it puts you all in the same boat. If Americas currency collapses, then China loses a major export market and suddenly its facing a lot of angry unemployed people. And its got enough of those as it is.

On the other hand, the US becomes a highly educated, well developed economy that suddenly can compete with low cost producers because of the currency collapse. Sure, theyll have a few years of hurting and investors will flee initially, but once the currency re-stabilises at its new level theyll come back. Theyd probably come out of it stronger again.

I dont think anyone will be able to help the US that much, though everyones fate is currently tightly interwound with the US. Its so important to world trade that it cant be allowed to fail. The E.U.s hand would be tied because Europe has, or should have, an eye on an aging population, an over generous welfare system and populations resistant to reform. Theres a ticking time bomb in balancing the budget that wont be too flexiable to funding the U.S.

What if China lobbed some nukes at the US?

Similar chance, similar economic consequences.

ronbyrne2005

also US would have to raise its interest rates a lot to attract investment to fund its deficits,the higher interest rates and imported inflation would choke US economy and a recession would occur.

Victor

Its not as easy as that - a lot of the debt is held in bonds that will mature over the next X years. They can't just show up at Fort Knox and say "give us all our money".

The only big bang potential is if they start selling US debt cheaper than Americans.

ronbyrne2005

Victor wrote:

Its not as easy as that - a lot of the debt is held in bonds that will mature over the next X years. They can't just show up at Fort Knox and say "give us all our money".

The only big bang potential is if they start selling US debt cheaper than Americans.

they can sell it on the open market,they dont have to go to "fort knox",of course the price would fall and interest rates would have to rise accordingly,if they kept the dollars they received then currency may not be too badly affected but if they sell the dollars they get from selling the bonds the dollar would drop and higher interest rates would be neccesary.

Victor

ronbyrne2005 wrote:

they can sell it on the open market,they dont have to go to "fort knox",of course the price would fall and interest rates would have to rise accordingly,if they kept the dollars they received then currency may not be too badly affected but if they sell the dollars they get from selling the bonds the dollar would drop and higher interest rates would be neccesary.

But what use is it to sell the bonds or other debts for dollars? All one then has is a bill for keeping a trillion dollars cash secure and you are gaining no interest. One needs to be able to convert those dollars into something else - American exports, American reserves of foreign currency or investment in other American assets.

ronbyrne2005

Victor wrote:

But what use is it to sell the bonds or other debts for dollars? All one then has is a bill for keeping a trillion dollars cash secure and you are gaining no interest. One needs to be able to convert those dollars into something else - American exports, American reserves of foreign currency or investment in other American assets.

they could buy gold-also quoted in dollars or american companies etc instead of continuing to loan it to the US treasury