Hi Chaps,
There has been a lot of talk about China being held at the mercy of the US because of all the Billions of dollars in debt which China finances. I personally think this is BS because the US will never
default on the bonds but for argument sake say if an economic war (no military involvement) were to break out between the two Superpowers without the use of military equipment I've played out the below scenario just in relation to the default of bond payments.
Please provide constructive comments on anything I might have missed out or assumed wrongly, it probably and most likely is not perfect since I'm not an economist or specialize in any related subjects.
Also note its impossible for a country to default on the bond repayments just for one party and not the others unless they are declaring war of some sort. Its a all or nothing deal like when Russia did it.
Please do not derail the topic with trolling etc, good manners will be appreciated
1. US decides to default on all bonds that are invested by China (867 Billion according to Wikipedia)
2. China in retaliation confiscated all US related foreign properties in China (intellectual, business & physical properties) and clamps down on foreign companies which have US related businesses with properties in China. Similar to a bankruptcy proceeding and debt recovery procedure. (This should more or less equate to 867 Billion)
3. Similar to the subprime crisis the major companies in the US find their stock price freefall when the fear sets in (investors not knowing which companies has been impacted by China's confiscation of properties) and dumps all portfolios across the board regardless of
their true valuation.
4. US Banks start to wobble as the bankruptcies of major companies set in with no hope of debt recovery due the confiscation of their company assets.
5. In a bid to prevent the banks from failing the government nationalizes some of the banks and prints more money to finance them. Who dares to buy the debt though and this would be at a huge interest rate?
5. Imports and Exports around the world start to fall as people fear another economic meltdown. Also US and China are not shipping to each other any more which means Raw product and final products cannot be obtained.
6. Foreign investors start to buy up cheap US company stock (this will include China which form offshore companies to hide funding source) in a bid to prevent the takeover of US companies the government places heavy restriction on stock market purchases effectively cutting off overseas funding.
7. The US dollar starts to freefall, Oil price jumps up while OPEC and other oil bearing nations try to find a alternative currency to trade.
8. China authorizes the local factories to manufacture the products previously held under tight confidentiality agreement under local branding.
9. India will be impacted by US firms which outsource to India when the funding stops.
10.To stop the economic meltdown IMF will probably implement a world current to act as a reserve, oil trading will be done on the new currency.
11. With the backing of Oil & as with the status of a world reserve currency gone the US dollar will freefall further due to demand drop.
If the China government can hold out for 1 month it will be more than enough for most of the above scenarios to run its course. Assuming they declared a 1 month holiday (there is already one for 7 days) the financial and economic destruction during the one month will make the Lehman brother's bankruptcy look like a market correction in comparison.
Many people think that China buys US debt in order for US to buy more stuff from China, thats not always the case. China buys the debt also for US companies to invest in China bringing more Jobs and Technology into the marketplace. China though did very well for herself in manufacturing space she still lacks in innovativeness which US is currently the marketplace holder (think IPods, Google, Amazon, Ebay etc). So in the short run I see the US suffering first should the above happen but in the long run China and the world will too.
There has been a lot of talk about China being held at the mercy of the US because of all the Billions of dollars in debt which China finances. I personally think this is BS because the US will never
default on the bonds but for argument sake say if an economic war (no military involvement) were to break out between the two Superpowers without the use of military equipment I've played out the below scenario just in relation to the default of bond payments.
Please provide constructive comments on anything I might have missed out or assumed wrongly, it probably and most likely is not perfect since I'm not an economist or specialize in any related subjects.
Also note its impossible for a country to default on the bond repayments just for one party and not the others unless they are declaring war of some sort. Its a all or nothing deal like when Russia did it.
Please do not derail the topic with trolling etc, good manners will be appreciated
1. US decides to default on all bonds that are invested by China (867 Billion according to Wikipedia)
2. China in retaliation confiscated all US related foreign properties in China (intellectual, business & physical properties) and clamps down on foreign companies which have US related businesses with properties in China. Similar to a bankruptcy proceeding and debt recovery procedure. (This should more or less equate to 867 Billion)
3. Similar to the subprime crisis the major companies in the US find their stock price freefall when the fear sets in (investors not knowing which companies has been impacted by China's confiscation of properties) and dumps all portfolios across the board regardless of
their true valuation.
4. US Banks start to wobble as the bankruptcies of major companies set in with no hope of debt recovery due the confiscation of their company assets.
5. In a bid to prevent the banks from failing the government nationalizes some of the banks and prints more money to finance them. Who dares to buy the debt though and this would be at a huge interest rate?
5. Imports and Exports around the world start to fall as people fear another economic meltdown. Also US and China are not shipping to each other any more which means Raw product and final products cannot be obtained.
6. Foreign investors start to buy up cheap US company stock (this will include China which form offshore companies to hide funding source) in a bid to prevent the takeover of US companies the government places heavy restriction on stock market purchases effectively cutting off overseas funding.
7. The US dollar starts to freefall, Oil price jumps up while OPEC and other oil bearing nations try to find a alternative currency to trade.
8. China authorizes the local factories to manufacture the products previously held under tight confidentiality agreement under local branding.
9. India will be impacted by US firms which outsource to India when the funding stops.
10.To stop the economic meltdown IMF will probably implement a world current to act as a reserve, oil trading will be done on the new currency.
11. With the backing of Oil & as with the status of a world reserve currency gone the US dollar will freefall further due to demand drop.
If the China government can hold out for 1 month it will be more than enough for most of the above scenarios to run its course. Assuming they declared a 1 month holiday (there is already one for 7 days) the financial and economic destruction during the one month will make the Lehman brother's bankruptcy look like a market correction in comparison.
Many people think that China buys US debt in order for US to buy more stuff from China, thats not always the case. China buys the debt also for US companies to invest in China bringing more Jobs and Technology into the marketplace. China though did very well for herself in manufacturing space she still lacks in innovativeness which US is currently the marketplace holder (think IPods, Google, Amazon, Ebay etc). So in the short run I see the US suffering first should the above happen but in the long run China and the world will too.
