What happens if the U.S. decides to stiff China, in regard to the debt we

[converted_democrat]

owe them? Any ideas of what would happen? What would China's course of action be? Thank you for your answers in advance.

[ET Awful]

1. Well, China has over a billion people and a very large military

Perhaps they'd try to . . . ummm . . . foreclose.

[shoelace414]

2. our money would be worthless because they'd stop

financing our federal budget

[ChairmanAgnostic]

5. and our economy would collapse

Oil countries would switch to the euro, causing the dollar to devalue severely. In fact, the dollar would not purchase much of anything anymore, inflation, even hyper-inflation would be rampant here, oil supplies would be spotty, food stock diminished, and there would soon be riots in the streets as banks, businesses and other services closed.

Think Germany 1930

[enid602]

9. euro

Iraq switched to the Euro prior to our invasion. Iran switched to the Euro prior to that. Could partially explain our interest in the area. Do you think the Chinese might mind financing our invasion of China?

[Burma Jones]

3. Say Goodbye to Wal Mart, Target, Costco....

Almost the entire retail economy would crumble. Stocks would plummet. China would buy up as much oil as it could. OPEC would refuse to accept dollars. Taiwan would be atacked and incorporated into China. We would probably miss the Beijing Olympics. The rest of the world would refuse to do business with us. The Dollar would become as respected as the (insert your own favorite third world currency here) and we would officially be a third world nation.

[tsuki]

6. An official, rather than unofficial third world nation.

http://www.commondreams.org/headlines05/0908-06.htm

[Deja Q]

4. War. More important, why did the US' interests ever treat with the enemy?

At all?

We were told all our lives China was an enemy. Even into the 1990s, the Chinese government was communist and fascist and oooh, evil. (and it is)

Meanwhile, as we're being told all that, US corporations are offshoring jobs to them and not caring if China learned from them.

Not only did those TRAITORS take away our jobs and treat with the enemy, they allowed the enemy to grow stronger than us.

ANY corporate exec who authorized offshoring to China ought to be questioned.

Unless China is our friend and we were just never told about it?

[converted_democrat]

8. I was wondering exactly the same thing. n/t

[Oggy]

7. The dollar would crash

China is not the only creditor. You would with immediate effect stop the sale of Treasury bonds as they would become worthless, so no one is going to loan the US any money, as no one would trust a country that defaults on such a large sum. China would most probably offload their dollar holdings as quickly a possible in retaliation, causing a run on the dollar. You are then looking at a worldwide depression, with the USA totally bankrupt IMHO.

See here for the countries holding bonds:-
http://www.ustreas.gov/tic/mfh.txt

As you can see Japan holds $400 Billion more than China.

If there is a loss of complete confidence in the dollar, then you may want to take in to account other investments such as Saudi Arabia investing 60% of their money in the US. See link:-

http://www.saudi-american-forum.org/Newsletters/SAF_Essay_22.htm

[bemildred]

10. You don't really think we intend to pay it back, do you?

Or that the Chinese expect to get it back?

[converted_democrat]

12. Yes, I guess I was expecting we would pay it back....Wouldn't we? n/t

[bemildred]

13. No, we would not.

We would inflate the dollar say 100% and then pay it back with
dollars now worth half as much (worked great in the 80s), or
we would negotiate an "adjustment" like Argentina just did. The
nice thing about inflation and high interest rates is that it
just clobbers the hell out of bond values, so that can make
discounted buybacks before maturity appetizing too.

[ozymandius]

14. Well, it is national debt. And according to the Constitution, national

debt and our obligation to repay that debt "shall not be questioned".

Amendment XIV. Section 4.
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

[bemildred]

16. Yeh, true, the Constitution says a lot of things ...

So we won't question it, and we will weasel on the payments.
Like Social Security.

[ozymandius]

17. Sadly.

Wordsmiths like John Roberts have probably constructed the papers to explain away this requirement.

[enigma000]

11. All of it? At once?

I doubt the US has that sort of cash sitting around. Besides what would the Chinese government do with it? The banking system in China has serious problems.

Three out of the four state commercial banks are believed to be insolvent. The precarious financial state of the Chinese banking system has made Chinese reformers reluctant to open the banking sector to foreign competition. Corruption poses another problem for
China’s banking system because loans are often made on the basis of
political connections. This system promotes widespread inefficiency in the economy because savings are generally not allocated on the basis of obtaining the highest possible returns.

http://www.fas.org/sgp/crs/row/IB98014.pdf

Better to keep buying US T-bills, financing the US government's debt and enabling the American consumer to continue to splurge on Chinese goods at Walmart.

[dcfirefighter]

15. Our money is based on debt

a pain in the ass. We pay off our debt, we've got no money base, and hence, no money, other than coin and a few treasury notes.

Banks lend money into existence based on a multiple of their real deposites. It's check money, electric money, what have you.

Theoretically, we could pay them off with fresh money, but we'd inflate our money supply to the point that our money was nearly worthless.

However, if we simultaneously collapse bank's ability to lend money they don't have - destroying check money - the overall money supply remains the same, and inflation is averted. Plus, we wind up with debt-free money - we stop paying $300B a year in debt service, and we (the US Treasury) earns $200B a year in seignorage, for a swing of $500B a year to our national credit.

The practical means would be to offer to buy the bonds China holds with this new money, with prices being negotiable.

These new 'greenbacks' would maintain their value because the Supply would be strictly controlled (by Constitutional Amendment?) and Demand would exist, if only to pay Federal Taxes. IOW Supply would be fixed, Demand would be increasing. (Actually supply would be increasing at ~$200B/yr while demand would be increasing faster).