[brettcaudle711]

It’s most likely that I just don’t understand the concept well enough, but what happens when China asks for it’s money from the US bonds they hold? Will the US have to pay up? Is it an option to default. Why doesn’t China unload now while there is still a little value left in the dollar?

[maester_miller]

Well, they hold bonds and notes with specific maturities. They can’t just say “give me the money now” at any given moment.

That said, IF, when the bonds expire (and I’m sure they hold bonds with a large variety of maturities) the Chinese refuse to buy new ones, the government will simply pay them back with the proceeds from bonds they sell to other entities, like say, the Federal Reserve.

[brettcaudle711]

Shouldn’t they hold trillions worth that have already matured. Do they just take that money and dump it into new bonds?

Thanks!

[jmherbener]

Yes, the U.S. Treasury department has to pay the to the holder of T-Bonds, T-Notes, and T-bills the interest due each period and the principle on maturity. Someone who is holding Treauries can maintain his overall amount by buying more as some of them mature and are paid off.

As you can see from the following chart, China has been reducing its holdings overall in the last few years and now holds around $1.2 trillion:

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

Someone who is holding Treasuries can sell them right now for cash in capital markets to other holders or buy Treasuries right now from other holders. But these secondary market trades do not involve the U.S. Treasury directly.

[brettcaudle711]

Thank you professor!

[brettcaudle711]

Interesting how everyone else is gaining in their holdings. Is that because China is selling theirs off to everyone else?

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