What would happen if China called in all US debt?
If China called in all of its U.S. holdings, the U.S. dollar would depreciate, whereas the yuan would appreciate, making Chinese goods more expensive.
It would lead to a major crisis of unemployment due to the loss of export business. China wants to keep its goods competitive in the international markets, and that cannot happen if the RMB appreciates. It thus keeps the RMB low compared to the USD using the mechanism that's been described.
If China “dumped” USA treasuries, they would take a serious monetary loss. The price of the treasuries would drop, effective raising the return for those who bought the bonds.
The IMF's Fiscal Monitor , opens new tab, released on Oct. 2, shows that the U.S.'s and China's total non-financial public and private debt-to-GDP rates have converged at about 270% of GDP, with the U.S. making up 30% of the global total and China 20%.
In fact, Treasuries are a logical investment for a country with high foreign currency reserves. China currently holds 10.2% of U.S. foreign debt.
A sizeable sell-off of Treasury securities by China would almost certainly lead to an appreciation of China's currency and depreciation of the dollar. This is more likely to help the United States than to hurt us, contrary to the claims of many observers.
Economic recession or slowdown: A default could undermine investor and consumer confidence, leading to reduced spending and investment. This could also result in an economic slowdown or even a recession, affecting businesses, job creation and overall economic growth.
If the central bank signals that it will normalize policy and might hike rates, Japanese investors like banks and life insurers could start dumping Treasuries to buy more-attractive domestic bonds. Along with any winding down of the carry trade, this would send Treasury yields higher and weigh on the dollar.
With a debt of $290.5 billion, Switzerland ranks as one of the top countries that owe the US money. Investors in Switzerland have also increased their holdings of US debt. The country's other main creditors include countries such as Germany and France.
Current Foreign Ownership of U.S. Debt
Japan is the largest holder of U.S. debt.
Is China's debt worse than US?
Debt as a share of GDP has risen to about the same level as in the United States, while in dollar terms China's total debt ($47.5 trillion) is still markedly below that of the United States (close to $70 trillion). As for non-financial corporate debt, China's 28 percent share is the largest in the world.
At the top is Japan, whose national debt has remained above 100% of its GDP for two decades, reaching 255% in 2023.
Chinese firms and investors own just over 383,934 acres in the U.S., less than the state of Rhode Island, and far less than how much Canada, Netherlands, Italy, the U.K. and Germany, in that order, each own. China is No.
A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth.
Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.
1) Switzerland. It is no surprise to see Switzerland on this list. Switzerland is a country that, in practically all economic and social metrics, is an example to follow. With a population of almost 9 million people, Switzerland has no natural resources of its own, no access to the sea, and virtually no public debt.
One theory: “They have to sell these Treasurys to help support the yuan,” he said. Selling Treasurys is a fast way to whip up U.S. dollars, and China will sometimes use extra dollars to go out on the global market and buy up their own currency. That artificially pumps up its value.
China's reserves has shifted its dollar reserves from Treasuries to Agencies, and made increased use of offshore custodians. The available evidence suggests that it still holds about 50 percent of its reserves in dollar bonds.
Government shutdowns don't hit payments for Social Security, Medicare, or Medicaid, since Congress places those programs in the mandatory category that's exempt from the annual government funding process and therefore predominantly exempt from funding lapses.
If you want to shift into cash, the safest option may be to sock away the money in a high-interest savings account at an FDIC-insured bank that pays a rate of more than 4% or in certificates of deposit, experts say.
What happens to Social Security if the debt ceiling isn t raised?
Under normal conditions, the Treasury sends Social Security payments one month in arrears. That means the check you receive in June covers your benefits for the month of May. If the debt ceiling isn't raised, the Social Security payments due to be sent to beneficiaries in June would most likely still go out.
Though China owns a large amount of U.S. debt, it isn't the United States's largest creditor. The greatest amount of U.S. debt is owned by the U.S. government, while the largest foreign creditor is Japan.
But other experts argue the risk of a hard landing is low. China has little overseas debt, and a high national savings rate. In addition, most of the debt is state owned – state-controlled banks loaned funds to state-controlled firms – giving the government the ability to manage the situation.
If all countries stop buying US treasuries, it would have a significant impact on the US economy. The US government would have to find other buyers for its debt, which could lead to higher interest rates and lower long-term growth.
In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion.
