Atlantis wrote:That is what US Pofoers like to believe; however, it's not that simply. Obviously, if the Chinese tried to sell off all bonds at once, they would take losses. But that's not going to happen. If they decide to de-invest from US bonds, they'll do it gradually. Since China is a major buyer of US bonds, a reduction of demand from China will make it harder for the US to refinance its debts. In other words, the US government will have to pay more to finance its debts if demand for US bonds decreases. That's what drove Greece to near bankruptcy.
US debt is ballooning due to Trump's tax cuts. If demand for US bonds decreases at the same time, that could put the US government into a difficult position. Today, Greece can already get cheaper loans than the US.
If they gradually sell off, that's fine too and nothing changes much. There's no problem here. There are plenty of people willing to buy US debt instruments.
My argument is, that at worse, there is no benefit to the rest of the global economy. At best, there is a benefit. I'm saying, its unlikely this virus will cause a long term slowdown/recession.... ASSUMING the virus fizzles out in a few months. If this thing gets worse... we will have bigger things to worry about than money. Further, it's causing companies to de-risk from China. This is true and happening, it's not conjecture.
My point here is, this is not necessarily bad for the rest of the world from a long term
global economic standpoint.
Overall, there's no reason to believe China would sell their bonds. This is all hypothetical anyway, and it likely not happen either. Which speaks to my point, that this virus isn't going to create economic chaos for anyone. It will slow everyone down, but not cause a crisis. It will also slow China down more than anyone else, since this is happening in their country (which means others stand to benefit).
This isn't just something people want to believe. This is what would happen. With respect to the debt, the US NEVER has to pay off the debt, all it needs to do is balance the budget, which is a far easier task, and has been done in the past.
The difference between greece and the US, is the the US is a major engine of the global economy, it is capable of producing advanced technology that improves global efficiency (which fights slow downs). Further, no one wants to see it slow down as the US would ismply drag everyone else down. The US has far more knobs/time/leeway to get it's debt situation in order if there ever were a sell off (which, there won't be a sell off anyway). Further, I would argue the debt is still not really a big deal. The problem is the deficit, and that can be fixed more easily. In this sense, I agree with steve_american in that the debt and deficit really aren't as bad as people claim. People claimed it would be an issue in 2008, yet we got out of that just fine....well, except for poor people.... However, from a macro economic perspective, which is the subject here, poor people don't matter (sad, but true).