Quote:
Originally Posted by TLAM Strike
What is China going to do? Corner us in a alley and bust our kneecaps for not paying up?  |
The US debt is generally in paper like Treasury bonds, bills and notes. Bondholders can't suddenly demand payment on bonds. Since bonds are for a fixed term there's no means by which to extract payment prior to the bonds maturation date. The US government pledged no physical assets when these bonds were sold to foreign parties. All T-Bond holders are unsecured creditors. If the US continues to do well economically, the bondholders get repaid with interest. If the US economy falters, the bondholders get stuck with the consequences.
What China COULD do in lieu of kneecapping, is refuse to buy any more paper. Should the US government make a T-bond offer and not all bonds are purchased, then guess what? The budget deficits cannot be financed, and the government runs out of money. Meaning, no more checks sent out to any government workers, any government contractors, no military personnel, no nothing. And no emergency midnight spending bill in Congress is going to make any difference, Congress can authorize additional deficits all they want, but if the investors don't buy the bonds, then the government has no cash to operate.
Another danger is not of “foreclosure” by foreign bondholders (for which no legal venue exists) but of total collapse of the US Dollar. That would immediately erase trillions of dollars of foreign equity (since T-bonds are redeemable only in US Dollars, not UK Pounds, Yen, Euros, or gold bullion).