What’s to prevent China from saying “OK, we’re ready to cash in our Treasury Bonds now. Yep, all of them.”?
April 7, 2009 by How Savings Bonds Work
Filed under More Bonds Answers
Can you answer End The Fed!!!’s question about Bonds?:
This would bankrupt America, and if we were to refuse to repay the debt, it would be considered an Act of War. We would literally be on our own in that battle.
This would bankrupt America, and if we were to refuse to repay the debt, it would be considered an Act of War. We would literally be on our own in that battle.
Were there any clauses in the deal that gave China all of those US Treasury bonds?
Bonds Tips
Bonds Feedback: The fact that they need us to buy their crap (exports) is all that prevents them from doing do.
Bonds Feedback: Us saying.. we’re closing our ports to your low quality CRAP and shutting off the flow of wealth from US to YOU.
Bonds Feedback: there is a financial/legal term that escapes me that we applied to Germany at the start of WW2 that kept them from cashing out all their assets from the country and bankrupting us.
Sequestorship I think.
Bonds Feedback: the us government will not be forced to pay face value for those bonds if china cashes them before they mature.that would be to our advantage,we pay less than we owe them.
our weapon sales make up to a trillion dollars a year,if we wanted ,we would at a great expense pay the chinese debt and remain with debt incurred from our allies and the middle east to pay china.
it may not neccessarily be an act of war,many countries have already refused to pay there debts to others and instead renegotiated the terms.despite china’s rise,it still needs the united states…..
Bonds Feedback: SO true, China currently does not have the adequate middle class to consume all the products China produces so at this point in time they need us just as much as we need them to buy our bonds
Bonds Feedback: They can’t cash them in all at once. They have different times of maturity. They could stop buying all the debt that the US tries to float or they could dump our securities on secondary markets.
But they would have to be certain that they could survive the economic backlash, no more selling their goods to American consumers..
All things considered, I think they would do better at economic recovery than my fat lazy American butt! I don’t think I would make it digging potatoes in the country.
Bonds Feedback: There are a lot of things preventing such an abrupt act, but the underlying threat is real. If we run trillion dollar deficits beyond the next couple of years, we will have serious problems again soon.
The Chinese want to get a positive return on the money they invest. Treasury bonds have been a world wide standard for the safest place to park money, but recent events have driven the price of these bonds pretty low. The Chinese see how much debt the US is contemplating issuing in the coming years and become understandably nervous about the value of the dollar, relative to the other currencies in which they might invest, as well as the ability of the US to repay the bond obligations.
Bonds are issued for a set period of time. If you want to cash in a bond before it matures, you do it by selling the bond to someone else. When the bond matures, you are given your money back, plus interest. to repay the bond holders, the bond issuer must either have saved the money from profitable ventures (in the case of the US, that means revenue from taxes) or they must borrow more money to repay the bond holder.
As long as the citizens of the US retain the capacity to produce products and services of value to other people, taxable transactions occur, and there is some source of revenue for the US. What is more likely to happen than China refusing to buy new bonds, is the world market demanding higher and higher interest on those bonds, which will increase the costs for the US.
Increased costs of borrowing will factor into political decisions about spending and taxation.
So, nothing as dramatic as going to war with China over not paying our debts is going to happen. Instead, the world markets will simply price in the higher risk they perceive in US bonds as our debt and trade imbalances continue to rise, until our politicians adopt more reassuring policies. Like not going to war in Iraq and spending 10 billion dollars a month for instance.
Bonds Feedback: I think that very few people understand the true magnitude of the debt that the US owes to China. China may produce a lot of crap, but they also produce a lot of very good exports as well. I don’t know exactly how it all works, but the US creating a new currency to reduce its debt to China is a possibility. Would a future North American Union be able to bully China the same way as the US bullies the rest of the world today? Would the leaders of Canada and Mexico be tricked into supporting open warfare the same way as so many countries were fooled into this “War of terror!” just to get America what it wants?
Bonds Feedback: A bankrupt America would bankrupt the world, including China.
The Commies are hooked on American capitalism. Ironic, no?
Bonds Feedback: thats the thing.
they wont
the world relies on the US
most of the products in the US are made in china which means the US in one of Chinas biggest customers. Essentially if were bankrupt China is too, and pretty much the rest of the world, all other countries rely on the US.