My apologies if this has been discussed before:
The Chinese government owns roughly $700 billion of US government bonds.
The Chinese government also owns roughly $200 billion of US corporate bonds.
There is old imperial China bonds that are pre-communist era.
Using Grok, it said that the value that the Americans hold is roughly $1 trillion of these imperial China bonds.
Why couldn’t the US government collect all of these bonds from imperial China, and hand them over to China and say we’re even?
Could the US cancel out China’s ownership of US government bonds and corporate bonds?
byu/hopeisthefuture inAskEconomics
Posted by hopeisthefuture
6 Comments
Don’t use LLMs as search engines or trust them. The PRC doesn’t acknowledge those bonds as owed by them and doesn’t pay on them. The US government would also have to confiscate the bonds to swap, which would require compensation under the 5th Amendment, and some of those bonds held in China will be held by private parties. Even assuming all of this is managed, it’s not possible to just swap face values, maturity, yield, etc are all relevant, and there still wouldn’t be an upside for the US government if it’s having to pay to US citizens/financial institutions the same amount that it’s getting forgiven in Treasury bonds (or more if corporate bonds are also on the table).
Without knowing the returns on the ledger, it would be hard to make a decent argument for or against, but theoretically, unless by some miracle, the return on those bonds is exactly identical, then one of the parties would see a negative value in cancelling them against each other.
To be honest, there’s really no incentive to do it anyway if it were an equal deal. Theres not much to gain for either party.
Edit – Looked into it further and the imperial bonds have no return and China doesn’t recognize their existence. So, in your proposal, China has no incentive to trade the old worthless bonds for current era US bonds.
The Chinese debt is owned by Americans not the US government. Are you suggesting US government seize $1T of American citizens money in order to pay off Chinese debt?
We want them to hold our debt. They will be less likely to attack us, and demand for US debt makes it cheaper.
You mean a “selective default?” Which is what it is.
Sure the U.S. could default and refuse to repay the PBoC and other Chinese entities.
It will be pretty shit for the U.S. Borrowing costs would surge because there will be a T-bill sell off.
Pre-communist China is still China.
When Turkey changed its name to Türkiye does the past get cancelled? India might be called Bharat in the future will the U.S. also disregard their T-bill holdings?
Aside from the Consitutional issues, consider what happens from a financial/economics perspective if the US government decides not to honor its debt. All of a sudden the credit default risk on US bond greatly increases and achieves junk status, demand from bond investors craters, and stated interest and yield has to surge sky high to compensate.