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Comment by heisenbit | Hacker News Reader

This is a move that does not make sense at all - seriously you start a squabble about a payment service with one of your largest bondholder? It does not make sense in a strategic way - what on earth is the goal here, if you want to reduce Chinese sales tell Walmart buying the stuff. It makes no tactical sense - there is not current trigger and the administration is outgoing in a few weeks. The only sense I can see is salting the ground for the incoming administration's diplomacy and there I think they underestimate the ability of the Chinese to pursue long term goals.

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"It does not make sense in a strategic way"

"It makes no tactical sense"

This is a pretty good summary of much of the last four years.

China sitting on over $1 trillion in US debt doesn’t give them leverage over the US, it gives the US leverage over China.

Would you be kind and explain how this is works? (my suspicion is that it is akin "if you owe bank a $10000, you have a problem. If you owe bank a $100mil, bank has a problem", but please don't let this idea influence your answer)

Thank you.

China has taken on the risk of us paying the $1tn. If they were to get incredibly aggressive, for example starting a war, then we could clear the debt. We just don't pay.

$1tn is a lot of money to any country, even one as large as China.

Defaulting on our debt would be a huge fucking deal for us as well, but if the stakes were high enough others would understand that we couldn't pay someone money while at war.

Both nations are nuclear armed. Creating a nuclear winter over a debt is a sketchy plan

Especially such in small amount.

It sounds like a lot of money, but the US War in Iraq tallied over a trillion, with Afghanistan matching that amount.

The CARES Act is estimated to have cost $2 trillion.

Countries are not going to go to war over such a petty amount of money. The costs of such a war would be 100x that amount, easily.

The cost of two first world nuclear armed nations going to war can't really be measured in dollars. Even if nukes didn't come into play, I'm listening to Dan Carlin's Hardcore History episodes on the War in the Pacific right now. The death tolls and misery is just staggering, and he hasn't even gotten to the firebombing where I'm at yet.

If I loan my girlfriend a hoodie and then break up with her, I'm not getting that hoodie back

There's a saying at least here in Norway that goes along tje lines of:

"If you owe the bank a 5 million NOK and cannot pay then you have a problem.

If however you owe the bank 500 million NOK and cannot pay then the bank has a problem."

This one is just as common in the US, precise numbers and currency aside.

Ah. Would you mind explaining how? I think that this is a myth that this gives you leverage.

Nonsense.

If China dumps those bonds tomorrow the US dollar would collapse instantly. China would feel some pain of course, but their internal economy is not directly tied to international markets so they can handle it way better.

The Federal reserve would buy them all up at the now discounted rate.

Now China would be stuck selling assets (t-bonds) at a loss, and in return, they get another asset (USD) which now has a suppressed value. And since low USD makes American goods relatively cheaper, it will hurt the Chinese production economy and help the American one.

Also, China could have difficulty deploying those USDs if the US Government imposes sanctions or other prohibitions on purchasing or capital inflow to the US.

> The Federal reserve would buy them all up at the now discounted rate.

Further proving to anyone else holding bonds how worthless dollars are.

T-bonds and dollars are basically the same thing. A t-bond is basically a bank account with the US Treasury saying that you gave them USD and that you're entitled to that USD back, with interest, at some later date.

Saying China "dumping" t-bonds is bad for America is like saying that a person "dumping" CDs is bad for a bank. The seller is the one getting hosed on the deal, because they are forced to sell at a discount (otherwise, it wouldn't constitute dumping). The bank / treasury already knows they need to pay back the money at some point.

Also, a trillion dollars in t-bonds isn't that much. The Fed has purchased hundreds of billion on several occasions without much fanfare. A trillion bucks won't do much more than trigger some NYTimes articles on the subject.

Dollars are dollars now, bonds are dollars in the future. They are not the same.

Dumping bonds is not just an economic decision, but also a trust decision. You hold bonds because you trust the US. Dumping bonds means you no longer trust the US ability to pay back those bonds with dollars worth anything; that you lost hope of ever getting repaid.

And of course you lose your nominal amounts of dollars, who's arguing that? You still dump them because you are taking your loses today instead taking more tomorrow.

> They are not the same.

They are cash and cash-equivalents. Meaning, the same.

Many large business transactions are done using t-bonds. The amount of dollars in the economy is surprisingly small, thus, at some price point, it becomes necessarily to pay in t-bonds.

> They are cash and cash-equivalents. Meaning, the same.

> Many large business transactions are done using t-bonds. The amount of dollars in the economy is surprisingly small, thus, at some price point, it becomes necessarily to pay in t-bonds.

Then they are not the same. You admit they are not the same, then deny they are not the same. If they were the same they would be called the same, and would be the same.

They can be equivalent and they are used similarly, just as a house can be used as "cash-equivalent" under certain circumstances. But they are different instruments that allow different (and some similar) uses.

I agree it makes no sense. But having China as a bondholder does not give them any power over us. Especially when said bonds are delineated in US currency - something the US can print at will.

Is not the money that is the problem, they hold bonds because they specifically do not want US dollars and are waiting for the time when the US (or the world) has something other than US dollars to offer them.

They don't want dollars doesn't matter who prints them.

Thought experiment: US pays China $1T in US fiat. Simultaneously, US cuts $1T checks to every single resident of the US. Chaos ensues. But seriously, wtf would happen in this situation?

Answer: The CARES act was the US government printing $2 trillion bucks and handing checks out to every resident of the US. Nothing happened (the chaos predated the money).

Also, it's important to realize that t-bonds and USDs are basically the same thing. A T-bond is, for all intents and purposes, high-denomination dollar bill that can be exchanged for low-denomination bills on an open market.

You missed the part where I said each resident would get a trillion bucks. Patently absurd, I know, but it's more fun to imagine than today's actual news.

Hyperinflation and the collapse of the US economy, and at long last, the introduction of socialism to the United States, (unfortunately, in the worst possible manner). A week later, we'll all be trading cans of gasoline and ammunition for euros and bottle caps.

Perfect example of cutting off your nose to spite your face.

We've all seen Red Dawn. Patrick Swayze will save us from the big bad socialists.

Basically what is happening right now, though not as extreme.

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