Chinese-owned US debt

China owns quite a bit of the United States debt. Some people view this as a problem. As in, any minute now China is going to call in that debt and Americans will be put to work as indentured servants, or they'll repossess New York or some such. It turns out this is not a realistic concern, but that hasn't stopped the likes of Ron Paul from banging on about Chinese occupying forces.[1]

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What kind of debt?

A fine question. Does the US call up China once a year swearing they'll totally pay them back next year, and they just need a few hundred billion to get them over the hump? Or are they more like the loan sharks of the international community? Do Americans need kneecap protectors? Or, does China just buy a lot of US Treasury bonds?

Hint: it's the last one.

See, China sells a shit-ton of stuff to America (trust us on this one), way more than America sells to them. The US pays in dollars, which you can't use in China, so they put it to work by buying bonds and other such investments. The dollar is a really safe bet — the risk when investing in a country's currency is that it might be conquered or its government might collapse, which aren't big concerns for the US with the world's most powerful military by a wide margin and a pretty stable government set-up, Tea Party-driven shutdown antics notwithstanding. And China has to do something with all that foreign currency, so they might as well invest it in a low-risk device like T-Bills.[2]

What if they call it in?

They can't do that; these are not puttable bondsFile:Wikipedia's W.svg. Regular bonds pay out only when they mature and not a moment sooner. Granted, they do pay out, but not all at once. The US just has to pay them a chunk at a time per year, but even that isn't worth getting excited about. They're not obliged to pay in gold; they just have to pay dollars (which they can print more of until inflation — which is currently at historic lows[3] — sets in, if they need to).[4] And if China did anything to weaken the dollar, they'd be sabotaging their own economy, since those dollars the US is paying them would be worth less.[5] The truth is, China is much more dependent on America than the other way around.

It's essentially economic MAD, but without the dark cloud of Cold War nuke stockpiling.

What else?

How about the fact that China owns only 7% of US debt?[6] Or the fact that for every dollar of US debt owned by foreign countries, it owns 89 cents of foreign debt?[7] Debt in this context is really something that just gets traded around like Pokémon cards. Yet another lesson on the need to for crying out loud stop thinking of state or international economics as though they work like individual or business economics. Macroeconomics does not work like microeconomics.

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See also

References
  1. "What if the Chinese had military bases in America?" REDSREDSREDSREDSREDSREDS!!!!!! In fairness, Ron & Rand can't even grasp that the Earth is older than 6000 years, do you really think they're going to be able to understand money as debt?
  2. Why Japan and China buy US debt, Business Insider
  3. The perils of falling inflation, The Economist
  4. Why Sarah Palin is Wrong About China
  5. That's why China's calls for a "de-Americanized" world economy created headlines during the fiscal cliff; they're just scared of losing their own money.
  6. China Owns US Debt, but How Much?
  7. Nobody Understands Debt
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