Yes, it is like an economic suicide bomb. They'll go down, but they will take half the world with them.
And the blackmail works, because people believe they are just crazy enough to actually do it.
If we started mass-selling US bonds after America is unable to pay its debts, that would make the value of US bonds plummet across the globe and turn those bonds into toilet paper.
Including the US bonds we have in our hands, which is a lot. Almost one trillion dollars worth.
Which would make America unable to borrow money in the future (which is the worst possible outcome for them considering that they run on debt), and destroy up to 1/3 of our total currency reserves.
Not to mention wrecking our largest trading partner besides the EU. So obviously, nobody wants that right now. The global economy is too integrated to prevent the effects from spilling over everywhere.
Just to be accurate, I think about 50-60% of your reserves are denominated in US dollars. I can't remember the exact number but I think it's closer to 60%.
Also, how is that even going to happen? For you to sell, someone else has to buy. Who is going to buy this mass sell-off of bonds? It's never going to happen, because it CAN'T happen. You need someone else to buy what you are selling.
So you can't really mass-sell, and even if you could, what would that do to the Yuan? You buy our currency for two reasons:
1: Nowhere else to put that much US dollars other than to just leave them in your account doing nothing
2: To stop the appreciation of the Yuan relative to the dollar by making the dollar appreciate!
You find a way to sell, you not only lose trillions (about $1.5-$2 trillion today, but in the future significantly higher), you not only lose the US economy and all significant amount of exports in one go, you not only gain the world a depression, but you also insure a significant rise in the Yuan, resulting in the laying off of tens of millions of Chinese in just one year (not to mention that they were already being laid off due to the fall in exports to the US and the depression of the world economy).
People also seem to forget that 2/3 of US debt is held by US citizens. $5 trillion is held by government trust funds, $6.4 trillion is held directly by US citizens, US corporations, the Federal Reserve, and US fed/state/local governments, and finally $5.6 trillion of the $17 trillion is held by foreign investors.
So really, foreign investors only hold a total of approx. 1/3 of our debt, and that is continuously
decreasing. This is of course not to mention that we hold nearly $5 trillion in direct investment in foreign countries (y'all forget so quickly!) and therefore are at a net foreign debt deficit (yes, I just made this up) of around $600 billion; seeing as how most of foreign debt is being held in our low-yield Fed Gov. bonds, we make a lot more off of ours than you guys yours.
If you'd like to off-load all of our debt, maybe we should do the same!
