In college, I flunked Econ 101 twice before I passed it. I was a pretty good student in my area of interest (history/political science), but Econ, which was a core requirement, stood in my way. Finally, I got through it and graduated. Third time’s the charm.
Having told you that, I realize that my take on this matter may be ill-informed, simplistic, and naive. And perhaps flat wrong. Follow my thoughts on this at your own peril.
What I would like to offer is a thought for discussion, possibly resulting in an education for myself. I admit, I have a bit of a self-serving motive here. So here’s my question: What would happen if the US government threatened to default on all of its debt to China should Beijing attack Taiwan? Would it be an effective deterrent, or would it be economic hara-kiri? I sincerely don’t know. Maybe here, I will find out. There is no shortage of intelligent people here at RedState. I might learn something.
So, the US debt to China is approximately one trillion dollars. This is largely due to Treasury Notes issued by our government, which the Chinese have bought up. I am not sure how much American private companies owe to Chinese companies, but I suspect it’s quite a lot. If the US government absorbed/forgave all private debt to China and then defaulted on its own debt to China, that might be a pretty big pile of dollars that Beijing could kiss goodbye should they attack Taiwan. And it might deter them from doing just that. As a natural consequence of this goes the presumption that we would no longer trade with China. We’re their biggest customer, and losing the US market is also going to be a kick to their stomach.
Now, many economists consider this a terrible idea because they say it would savage our ability to borrow from other countries in the future. If America is just going to default on its fiduciary obligations, we’re certainly not going to loan them any money. And since we currently owe the world around 31 trillion dollars, and we run our government on borrowed money, jeopardizing our ability to get loans may be suicidal. And I get that. However, this would have to be done by making it clear to the rest of the world that a default on Chinese debt is economic warfare used only against China. Everybody else will continue to get their payments. Getting this message across is vital. […]
— Read More: redstate.com
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