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Comment by yummyfajitas | Hacker News Reader

If China declares unrestricted war, and attempts to use debta as a weapon, we have a very simple response: "Dear world, all T-Bills we sold to China are hereby repudiated in response to their hostile acts."

Or, to paraphrase: When you owe China $1000, you've got a problem. When you owe China $800 billion, China has a problem.

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China also really can't afford to lose its accumulated savings, since they'll need every saved dollar to deal with the massive demographic problems caused by the one child policy.

While the U.S. short term demographic issues will be bad when the baby boomers retire, the changes are going to be even more extreme in China. When their population ages enough, those accumulated savings will be absolutely critical: http://brontecapital.blogspot.com/2010/02/globalizing-austra... .

How would that work exactly? China starts selling t-bills. Selling to whom? Buyers. Now non-Chinese buyers have the bills. Are those bills repudiated? Also, since the sell-off is a legitimate threat, it seems to follow that the market for t-bills is so liquid, that repudiating those bills belonging to one entity would be technically impossible.

Who will buy a debt that will not be repaid?

T-Bills are tracked via the book entry system. I.e., the Treasury keeps a registry of who owns what debt. So all we need to do is repudiate all the debt that China currently owns. Then there will be no buyers.

all we need to do is repudiate all the debt that China currently owns

At which point every other holder of U.S. Treasuries will wonder "Am I next?". This will lead to a massive sales of U.S. debt instruments around the world, and would not be good for anyone.

So China engages in open hostilities against us, and we tank their bonds.

Now UBS will worry we will do the same to them, perhaps in response to Switzerland becoming hostile? Nomura dumps our bonds in anticipation of Japan going all 1942 on us?

China can sell it's US debt just like any other party that holds a claim on the US, how and when they do so is at their discretion.

If the US would do what you say then it would knock the bottom out of the market faster than any Chinese sell of ever would.

The dollar would go in to freefall just about instantly.

At which point your currency/bonds are worthless to everyone who doesn't have to pay taxes with them since you look for reasons to break your promises when things don't go your way.

A single repudiation in response to hostile acts, which occurred once in 80 years will certainly make everyone dump US debt?

I doubt it. Maybe we will be downgraded from AAA to AA, but I doubt we would see more than that. In contrast, China would lose $600-800 billion and anyone else who wants to use debt as a weapon would think twice.

You're misunderstanding something here, the selling off of the T-bills and other US dollar valued assets would be the extent of the hostilities. The rest will take care of itself.

I think you're underestimating the effect of the US pulling something like that. One of the main pillars of the US's strength is the absolute reliability and inviolability of its government debt. Attempting to unilaterally annul that debt, and for such capricious reasons, and I imagine the consequences would be both immediate and profound.

China engaging in open hostilities against us is "capricious"?

Yes, because it has nothing to do with the debt. And of course China would accuse the US of starting the war just so it could do that.

Anyway, it's never going to happen. America's not going to start WWIII over Taiwan, talk about lose-lose.

Agreed with yummyfajitas: anyone who expects that the promises of financial instruments between belligerents will be honored in the case of war is delusional.

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