If it called in its debt, U.S. interest rates and prices could rise, slowing U.S. economic growth. On the other hand, if China called in its debt, the demand for the dollar could plummet. This dollar collapse could disrupt international markets even more than the 2008 financial crisis.
China has steadily accumulated U.S. Treasury securities over the last few decades. As of October 2021, the Asian nation owns $1.065 trillion, or about 3.68%, of the $28.9 trillion U.S. national debt, which is more than any other foreign country except Japan.
What happens if the U.S. defaults? If Congress doesn't suspend or raise the debt ceiling, the government would not be able to borrow additional funds to meet its obligations, including interest payments to bondholders. ... The dollar's value could collapse, and the U.S. economy would most likely sink back into recession.
China takes the second spot among foreign holders of U.S. debt with $1.07 trillion in Treasury holdings in April 2020, just behind Japan. 2 China has trimmed its holdings and this is the lowest amount held in the last two years. It currently holds 15.5% of the foreign debt.
For its part, China owned 191,000 acres worth $1.9 billion as of 2019. ... Indeed, there has been a tenfold expansion of Chinese ownership of farmland in the United States in less than a decade. Six states — Hawaii, Iowa, Minnesota, Mississippi, North Dakota and Oklahoma — currently ban foreign ownership of farmland.
The federal net debt rose by $253.4 billion in 2020 to reach $942.5 billion or 42.7% of GDP, compared with 29.8% in 2019.
When a company fails to repay its debt, creditors file bankruptcy in the court of that country. The court then presides over the matter, and usually, the assets of the company are liquidated to pay off the creditors. ... They cannot forcibly take over a country's assets and neither can they compel the country to pay.
According to a report published by Moody's Analytics, the US GDP would decline, approximately 6 million jobs would be lost and the unemployment rate would increase dramatically. And, just as significantly, the country's track record, at least as far as paying its debts is concerned, would be irrevocably stained.
The credit of the United States is built on centuries of stability and responsibility. This country has never intentionally defaulted on its obligations because of the debt limit.
Breaking Down Ownership of US Debt
China owns about $1.1 trillion in U.S. debt, or a bit more than the amount Japan owns. Whether you're an American retiree or a Chinese bank, American debt is considered a sound investment. The Chinese yuan, like the currencies of many nations, is tied to the U.S. dollar.
What Would Happen If China Called In Its Debt? China's position as the largest foreign holder of U.S. debt gives it some political leverage. It is responsible for lower interest rates and cheap consumer goods. If it called in its debt, U.S. interest rates and prices could rise, slowing U.S. economic growth.
At the end of 2020, China's foreign debt, including U.S. dollar debt, stood at roughly $2.4 trillion. Corporate debt is $27 trillion, while the country's total public debt exceeds 300 percent of GDP.
Since the end of 2019, six countries (Argentina, Belize, Ecuador, Lebanon, Suriname, and Zambia) have defaulted on sovereign debt obligations. Public debt in emerging markets (excluding China) is expected to reach 61% of GDP in 2021.
Rather than raise taxes, governments often issue debt in the form of bonds to raise money. Tax hikes alone are rarely enough to stimulate the economy and pay down debt. There are examples throughout history where spending cuts and tax hikes together have helped lower the deficit.
Public Debt
The public holds over $22 trillion of the national debt. 1 Foreign governments hold a large portion of the public debt as well, while the rest is owned by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and savings bonds.
As of December 2019, the nation with the highest debt-to-GDP ratio is Japan, with a ratio of 237%. In 1992, Japans's Nikkei (stock market) crashed.
Brunei is one of the countries with the lowest debt. It has a debt to GDP ratio of 2.46 percent among a population of 439,000 people, which makes it the world's country with the lowest debt. Brunei is a very small country located in southeast Asia.
On January 8, 1835, all the big political names in Washington gathered to celebrate what President Andrew Jackson had just accomplished. A senator rose to make the big announcement: "Gentlemen ... the national debt ... is PAID." The huzzahs rose up around the halls of Congress, or something like that.
1. Many Countries Never Defaulted. There are a number of countries that have a pristine record of paying on sovereign debt obligations and have never defaulted in modern times. These nations include Canada, Denmark, Belgium, Finland, Malaysia, Mauritius, New Zealand, Norway, Singapore, and England.
When countries borrow money from foreign countries, it is known as foreign country debt. ... When countries are unable to pay back on their loans to their creditors then they declare bankruptcy and are then considered defaulted. Most of the sovereign defaults are foreign currency defaults.
We call this “inflation”. Some inflation (to keep up with population) is necessary. But too much can lead to serious problems. So, governments try and balance printing money with borrowing to slow down inflation to a manageable level.
While both countries are in the list of top ten economies in the world in 2018, the US is the largest economy in the world, with US$20.4 trillion, with Canada ranking tenth at US$1.8 trillion. ... Canada's 2017 debt-to-GDP ratio was 89.7%, compared to the United States at 107.8%.
Most countries, however, don't run into repayment problems. ... Just as teenagers have to build solid credit in order to establish creditworthiness, countries issuing sovereign debt want to repay their debt so that investors can see that they are able to pay off any subsequent loans.