Here’s an absurd article from a few years ago…
Chinese Leaders Threaten To Sell US Debt as Punishment For Taiwanese Arms Sale
The doomsday scenario we’ve feared since World War II has arrived.
A doomsday scenario!
In response to the United States’ latest arms sale to Taiwan, the Chinese military has suggested that China sell off some of the U.S. debt it owns to give the U.S. an economic punch of sorts.
Oh no! That would be a terrible blow to the USA. (Not.)
Senior Chinese military officers have proposed that their country boost defense spending, adjust PLA deployments, and possibly sell some U.S. bonds to punish Washington for its latest round of arms sales to Taiwan. The calls for broad retaliation over the planned U.S. weapons sales to the disputed island came from officers at China’s National Defence University and Academy of Military Sciences, interviewed by Outlook Weekly, a Chinese-language magazine published by the official Xinhua news agency.
So let’s see. China sells goods to the USA in exchange for dollars. China deposits those dollars at the Federal Reserve in order to gain interest, and to move dollars out of China so that dollars cannot displace the local Chinese currency. China likes U.S. Treasury securities, because they are the safest in the world, since the U.S. government can create infinite dollars that are accepted worldwide. China deposits its dollars at the Fed by purchasing T-securities. China threatens to sell those T-securities to someone else. China would then collect money for those Treasuries, but would sacrifice the interest that China would have been paid. (The new owners would collect the interest.) The money that China initially deposited at the Fed would stay in the Fed.
And this would harm the USA…how again?
I mention this because most people pretend that the U.S. government is “bankrupt.” Hence they pretend that the U.S. government runs on tax revenue, and on loans (in dollars!) from China. Therefore they believe that China could harm the USA by “dumping China’s bonds,” or by “calling in China’s loans.”
Nonsense. The truth is that China could sell all its T-securities tomorrow, and it would hurt no one except China, which would lose the interest that China would have been paid. The money that China deposited at the Fed would stay at the Fed. It would simply have new owners.
As far as China “calling in its loans,” this would just be a matter of giving China’s dollars back to China without interest. It would have no effect on the U.S. government’s ability to keep creating money.
So ignore whatever you hear about China using the (fake) “national debt crisis” to “threaten” the USA. It’s nonsense.
I just saw a different article that is full of nonsense. Examples…
China’s position as America’s largest banker gives it some political leverage. Every now and then, China threatens to sell part of its debt holdings. It knows that, if it did so, U.S. interest rates would rise, which would slow U.S economic growth.
“America’s largest banker” is the Fed, not China. And if China sold its T-securities, it would have no effect on U.S. interest rate. The Fed decides the “overnight” rate and the Fed funds rate based on many factors, of which China is only one.
What would happen if China called in its debt holdings? China would not call in its debt all at once. If it did so, the demand for the dollar would plummet like a rock. This dollar collapse would disrupt international markets worse than the 2008 financial crisis. China’s economy would suffer along with everyone else’s.
China cannot “call in its debt holdings.” China has money on deposit at the Fed. China cannot get that money out of the Fed until China’s T-securities mature. But China can sell its T-securities to others, and sacrifice the interest that China would have been paid. This would harm China, but not the USA. The U.S. government does not borrow its spending money. So how could China “call in its holdings”?
And now here’s some nonsense from “Investopedia”…
China offers loans to the US so that the US can keep buying the goods China produces.
Huh? China cannot create dollars, but China lends dollars to the USA so the USA can spend those dollars on Chinese goods? Ridiculous!
Hence, as long as China continues to have an export-driven economy with a huge trade surplus with the US, it will keep piling up US dollars and US debt. Chinese loans to the US, through the purchase of US debt, enable the US to buy Chinese products.
Nonsense. Dollars don’t originate in China. Dollars originate in the U.S. government, and in U.S. banks that make loans. That is what buys Chinese goods. “Loans” from China are simply dollars that China deposited at the Fed, after getting those dollars from outside China.
Some people fear that China might “dump” its T-securities. What does that mean? Simply that China would sell its T-securities to someone else, and forgo the interest.
It’s trivial, but people like that word dumping. “China is dumping U.S. debt!”
Like the “debt-to-GDP ratio,” its sounds dramatic, but it is meaningless.