I have a Chinese bond given to me once as a gift. Articles, Business, Economic Affairs, Politics, Social Issues, Trade, World. This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._. The U.S., to borrow money for 10 years, is paying less than 2 percent. Any liquidity crisis would cause panic, and other investors would look to offload their US securities. Please check your inbox to confirm. Countries including the U.S. have become beholden to China due to the staggering level of IOUs the government has scooped up over the years. Paul Solman frequently answers questions from NewsHour viewers and web users on business and economic news on his Making Sen$e page. https://www.pbs.org/newshour/science/what-happens-to-china-if-the-us-defaults-on-its-debt, Economic Comedian Compares China-U.S. Relations to Teen…Romance. He is the author of “The War on Cash.” You can learn more at AndrewMoran.net. For home study students and young people, Liberty Nation recommends…, High School: How COVID-19 Has Impacted the US Economy, Middle School: The Economic Cost of COVID-19. This would also be a dramatic change, but it would happen over time and reduce the effects, should a default ever happen. The government eventually paid back everyone what it owed with interest, but that didn't erase this accidental default from the market's memory. Also check out newcomer ConservativeNewsDirect.com, © 2020 A Project of One Generation Away | WordPress Website Design and Social Media Management by KMAAC. In March, China sold approximately $30 billion to shield the yuan’s value from the spike in the greenback’s appreciation. The Treasury Department would be in a tough spot because it is issuing $2.999 trillion in debt to help cover the cost of its Coronavirus stimulus and relief spending. Jury Questionnaire for George Floyd Murder Trial – READ IN FULL, Refusing to Rule – LN Radio Videocast – MemberZone, La Traviata: Falling in Love With the Fallen Woman, Education Fail: ASU Prof Says Grading on Results is Racist, Conservative Daily Snapshot – Liberty Nation, Operation Lone Star: Texas Battles Biden on the Border, Please respect our republishing guidelines - Click Here. It might even choose to impose a new round of tariffs on U.S. goods and services. Photo by Mark Ralston/AFP/Getty Images. Both nations each possess more than $1 trillion in American bonds, and if either Tokyo or Beijing were to unleash a fifth of its holdings onto global financial markets, it would be a day of reckoning. Well if we defaulted, the entire global economy would crash including growing economies like China and India. Is America a Loan Shark or a Borrowing Walrus? Taiwan Taiwan announced it would only shoot if attacked. Paul Solman: If we went into default, China would have to accept less money on its loans to the U.S. — i.e., the U.S. Treasuries it holds. Editor’s note: For more on China, see out ‘Standup Economist in China’ series with Yoram Bauman, who sends us occasional video updates while on a five-month climate economics research stint in Beijing: China’s Communism and Capitalism: The New Yin Yang? When China Rules the World: The End of the Western World and the Birth of a New Global Order is a book by British journalist and scholar Martin Jacques.It was released in 2009. What would happen if the US defaulted on debt payments? © 1996 - 2021 NewsHour Productions LLC. This would result in much higher borrowing costs for the country - surely not a surprise. If a war broke out between the United States and China, the clash between two of the world’s most powerful militaries would be horrific. Learn more about Friends of the NewsHour. This would increase bond yields and increase the cost of US debt interest payments. It would be alot worse if China did this. Since March 2019, China’s holdings have decreased from $1.12 trillion to around $1.065 trillion. The dollar could crater, bond prices would be pushed down, and an economic calamity would occur. Over the last decade, China and Japan have routinely swapped the top spot as the largest foreign holder of Treasury debt. China’s military upgrades, especially in the areas of anti-access and area-denial weapons, would make any war between the two countries “intense, destructive, and protracted,” according to the RAND corporation, America’s premiere policy and decision-making thinktank.The non-profit, non-partisan organization has been doing this kind of research since 1948. Cliff Tan, the East Asian head of global markets research at Japan’s MUFG Bank, was blunt in his assessment of the tactic in an interview with South China Morning Post: “It’s such a crazy idea that anyone who has made it should really have their fitness for office reconsidered. If China goes for capital controls, Tesla may have a hard time transferring profits from China to the U.S. At stake are hundreds of Chinese public companies with over one trillion dollars worth of shares trading in … It would be uncharted territory. The U.S. is deeply in debt, and it maintains a Rolodex of creditors at home and abroad – friends and foes alike. WordPress Website Design and Social Media Management by KMAAC. The country had, at the end of 2019, about $23.2 trillion debt or $70,492 per U.S. citizen. … By building a factory in China, Tesla managed to avoid tariffs and reduce costs. Thank you. But global investors don’t seem to quaking at the prospect of U.S. default at the moment. What would happen if the U.S. government defaulted on making payments on any portion of the $18.1 trillion it has borrowed? But China could sell the debt for $0.01 on the dollar. An important battle is developing between U.S. and Chinese regulators. According to various media reports in the U.S. and China, the White House is mulling a plan that would see the federal government canceling all or part of the $1.1 trillion debt owed to Beijing. Following the Second World War, the United States gained its superpower status through military might and a strong currency. No they can't. As we have learned over the last couple of months, we are living in an environment where anything can happen. Economics Correspondent at LibertyNation.com. I believe it would be the last step for China since the United States would not buy from them any more. The only major example I know for a large nation to default was Russia.. but they didn't have the size and influence of the US economy. This was the second time in two years that House Republicans resisted raising the debt ceiling. In this century, China has attained incredible influence worldwide by investing in many pockets of the globe, whether it is parking money in foreign assets or flooding the international marketplace with cheap goods. When a country does this, it's known as a sovereign default. This four-decade-old policy would legally allow Trump to tear up its debts to America’s fair-weather friend. In the immediate fallout, interest rates would skyrocket, making borrowing more expensive for the government, businesses, and consumers. I'm not sure what people would use as a substitute. Global financial markets suffered severe cases of whiplash and migraines during the 18-month U.S.-China trade dispute. “What if China and the US were to decouple financially,” a group led by David Cui, head of China equity strategy with the American bank, asked itself in a June 4 note to clients. Its government holds $1.3 trillion in U.S. Treasury bonds and a whopping $3.5 trillion in dollar-denominated assets. The consensus is that the Trump administration is unlikely to take this drastic action. Paul Solman: If we went into default, China would have to accept less money on its loans to the U.S. — i.e., the U.S. Treasuries it holds. US debt owed to China. While the United States is unlikely to default on its debt, the possibility is always present. Liberty Nation is a trusted source for Conservative news with original commentary. Another failure here could further accentuate perceptions of its economic decline.” Next up - the US dollar would absolutely collapse, as confidence in the country and its currency would evaporate overnight. But what if Washington were to take advantage of the Coronavirus pandemic and not pay its obligations to the Chinese government? Two percent for a decade. For these reasons, expect China to continue to be one of the world's largest holders of U.S. debt. If there is anything the Coronavirus has taught us, it is that anything can happen. If you think the American economy is bad now. He believes the public health crisis could have been stopped in China, and “it should have never happened.” The president and his administration are now reportedly examining ways to penalize China for its mishandling of the COVID-19 outbreak, which could include slapping new tariffs on the world’s second-largest economy. If we repudiated— that is to say, renounced our debts, as China itself did after Mao took over — China would own nothing but a lot of worthless U.S. IOUs, as the holders of Chinese debt did after 1949. Higher long term bond yields. If the US did default on debt owed to China, it would be a particular move for a good reason. And the United States could very well lose. A recent Federal Reserve study said the damage during the crisis eventually could have involved 28 funds that would have "broken the buck." Here’s Thursday’s query: Question: What would happen to China if the U.S. went into default, given it holds so much U.S. debt? Let’s say Washington threw up its hands and informed President Xi Jinping that it would not repay 25% of the $1.1 trillion. It has racked up these holdings through an export-oriented trade policy, by which China sells goods and services to the U.S. and gets dollars in return. You can potentially add a monumental debt default to the list of crazy things to transpire in 2020. The consequences of a debt default may become all too real in the very near future. VIDEO: What’s the Deal with the Federal Reserve? Chinese Housing Bubble: A Troubling Update from Beijing. So we defaulted on some of them. Subscribe to ‘Here's the Deal,’ our politics newsletter. It is not that America could not afford to pay, but that it morally should not. Crashing 25% of the world economy will take the world down with it. We view this as largely a political ploy for [Donald Trump’s] re-election and a cynical one because it would destroy the financing of the U.S. federal budget deficit.”. This is when the country cannot repay its debt, which typically takes the form of bonds. Nobody knows what the heck is going on anymore. Meme of the Day – Liberty Nation – 5.14.20, Immigration Roundup: Importing Workers Won’t Fix the Job Crisis, Whatfinger.com -- the #1 Alternative to the Drudge, Trump Making His GOP List – and Checking It Twice. This would somewhat help mitigate risks should the president invoke the International Emergency Economic Powers Act (IEEPA). China also became the world's biggest exporter in 2009. While this would produce consequences, the other primary consideration would trigger massive ramifications for both countries. The dollar could crater, bond prices would be pushed down, and an economic calamity would occur. 1. Trade war, military combat, and economic warfare – all options are on the table. It might even choose to impose a new round of tariffs on U.S. goods and services. What happens? What’s the Deal with the Federal Reserve? Analysts have already named this move the “nuclear option” since it would have long-lasting effects. It could happen again in the event of a default. Swamponomics: Is It High Noon for Bitcoin, Jobs, and Inflation? President Donald Trump recently told reporters that the United States has endured “the worst attack” the nation has ever witnessed, describing the pandemic as worse than Pearl Harbor and the September 11 terrorist attacks. But if you thought a spat over tariffs and import restrictions was horrendous for the Dow Jones Industrial Average, you can only imagine the turmoil that would unfold in China and the U.S. if Uncle Sam defaulted on its obligations. All Rights Reserved. The Eurozone has showed how fears over liquidity can be contagious. America is not just deciding to skip the bill; China is a country which should be treated as a rogue state. If banned in China, Apple would lose overnight $47 billion in revenue and be forced to lay off up to 27,000 employees while Huawei becomes the … While even some very respectable commentators have equated America with Greece, just at the moment, Greek 10-year bonds pay, in effect, a 29 percent interest rate. High School: What is Interest and How Does it Work? urging China’s air force to patrol the skies over Taiwan and “achieve reunification through military means” if it fires any shots. Reuters reports that the U.S. might choose to initiate “a synthetic default” that would target specific debtholders, which would involve President Trump demanding “that banks halt any payments of interest or principal to any account held by a Chinese government counterparty.”. It entitles me to precisely nothing in China. China would be harmed in either event – America defaulting or Beijing cutting its holdings. The United States is mired in an intensifying trade war with its biggest creditor, raising the specter that China could go nuclear by dumping its $1.12 trillion of US Treasuries. Andrew has written extensively on economics, business, and political subjects for the last decade. Li Daokui, an adviser to the People’s Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action.   China needs this growth to raise its low standard of living. Few global powers have ever passed on the torch without a violent conflict, and there’s little reason to think that the US and China will break the mold. 1 China And The United States May Go To War. Japan has increased its stake in U.S. debt, raising its holdings from $1.078 trillion to $1.268 trillion in the same period. What are the possible consequences of the U.S. defaulting on its debt owed to China over the Coronavirus pandemic? A security guard patrols outside the headquarters of the Bank of China in the Xidan shopping area of Beijing. That’s a question the Federal Reserve asked not so long ago, and just in case this might someday happen, the Fed created an emergency plan to deal with the situation. Indeed, the uptick in interest could be permanent as the long held belief that the American government would never default on its debt would be blown to the wind. China would be harmed in either event – America defaulting or Beijing cutting its holdings. China has become the largest economy in the world, outpacing the United States and the European Union. The world is increasingly starting to look towards China, and that comes as a difficult time for America. Doesn’t seem as if the world is much worried about U.S. default, but deflation instead. Let's see how far trump pushes. In the event of a default, the nation's pristine credit rating would be trashed. This increase in interest rates would cost the United States billion upon billions of dollars in the long run. When the US Stock Market crashed before the Great Depression, it took the world with it. He also writes about economics at Economic Collapse News and commodities at EarnForex.com. The country also technically defaulted in 1790 and 1933 without an apocalypse occurring. By defaulting on even a portion of its liabilities, investors’ faith in the guaranteed nature of the U.S. government to cover its bills would be destroyed. Subscribe to Here’s the Deal, our politics newsletter for analysis you won’t find anywhere else. Well not much, China holds only 5% of US debt.. Alot would have had to go wrong for that to happen anyway so probably the US would be in a tough spot. A more likely, but still apocalyptic, scenario would be some partial default or sustained high inflation. Local media are reporting that China may be considering its options, including cutting its holdings of Treasury securities by allowing them to expire and not be replaced by new ones. If they default on the Tr$1 they owe China, that would free up sideline cash so the Treasury can buy stocks to support the market to support the economy to support every day Americans. Much of China get most their food from the US, and sells mos their products to the US. What if a multitude of nations banded together and refused to repay Beijing, citing COVID-19? Then China, the U.S.’s biggest creditor, will be left holding the bag. If the US collapsed now, it would remove $16 trillion, 25% of the world economy. China has boasted that it’s enjoying what it calls a “peaceful rise”—but it’s unlikely it’ll stay that way. It might also be the catalyst for an aggressive de-dollarization push and allow China to diversify its $3 trillion in foreign exchange reserves, something that internal officials and regional allies have been pushing for several years.
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