Could China Crush America With This One Move?

China is the largest foreign holder of U.S. debt. But does that put America at risk of China coming to collect and breaking the bank?

In this video from Thursday's edition of Where the Money Is, Motley Fool financial analysts Matt Koppenheffer and David Hanson look at Chinese-held U.S. debt, and explain why this works differently from debt on an individual level.

They also look at who the real holders of the bulk of U.S. debt are, cite some work from Morgan Housel, and explain why China selling off its U.S. Treasuries en masse would have far more downside for Beijing than upside.

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  • Report this Comment On February 15, 2014, at 10:11 PM, luckyagain wrote:

    "China is the largest foreign holder of U.S. debt. But does that put America at risk of China coming to collect and breaking the bank?"

    China like any other holder of US public debt can "cash" in their debt. If China was to demand payment of all of their debt, they would be paid in US dollars. These US dollars would trade sharply down compared to other currencies and so China would lose a great deal of the value of these dollars. People have to understand that China does not allow its currencies to be priced by the market. Instead China has a fixed rate set by the Chinese government.

    So China can "cash" in the US public debt but what would China with all these US dollars? This action would cause the things that China buys to go up in price. The Chinese fully understand the situation and have no interest in doing it.

  • Report this Comment On February 15, 2014, at 11:31 PM, DaSky wrote:

    Maybe, maybe not, but MF definitely carries the water for the O Regime!

  • Report this Comment On February 16, 2014, at 9:25 AM, wtbutcher wrote:

    I have alway's believed that Hank Paulson's 700 billion dollar shakedown of the U.S. Treasury in 2007 was instigated to pay off demands from China. What is he doing now? He represents the Chinese.

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Matt is the Managing Director of The Motley Fool GmbH, The Fool's German business. Besuch uns bei!

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