What happens when China Stops buying our debt?
For years, people have wondered what happens when China stops buying U.S. Treasury bonds. Once China refuses to finance our massive deficits, the thought goes, interest rates will surge, and the Treasury might have a hard time selling bonds (ask Greece what it’s like). And if China actually began selling its Treasury bonds… that could bring about something far worse.
But we don’t have to wait any longer. China has been a net-seller of Treasuries for the past few months. And not only does the world still exist, but interest rates are near an all-time low. Like so many other stories about the economy, the idea that the U.S. is reliant on China to buy its debt and that hell will break loose when it stops is greatly exaggerated.
China has indeed been a prolific buyer of U.S. debt over the past decade. In 2000, mainland China owned less than $60 billion of Treasury debt. By 2010, it owned more than $1 trillion, surpassing Japan as America’s largest foreign creditor.
But those numbers have topped out, and actually dropped, in the last few months