Could the US selectively default on Chinese-held treasuries?

[KrazyHorse]

All right. Got to sleep now. See you all tomorrow.

Drake, I'll be in your neck of the woods this weekend (upper west side at north end of the park)

Want to hang out for a bit on Sat or something?

[Naked Gents Rut]

Sure. I've got plans during the day, but I could go for some drinks in the evening.

[KrazyHorse]

Kay. I'll send you pm with cell number later.

[Felch]

My dad was talking about this same idea last night. I reminded him that if you renege on a trillion dollar debt, you'll have a lot of trouble borrowing in the future. Considering he'd written his thesis on 16th century Spain, you'd think he'd know that.

[KrazyHorse]

My dad was talking about this same idea last night. I reminded him that if you renege on a trillion dollar debt, you'll have a lot of trouble borrowing in the future. Considering he'd written his thesis on 16th century Spain, you'd think he'd know that.

Reneging on a trillion dollar debt because you don't want to (or can't) pay will seriously adversely affect your credibility. Reneging on that debt (here seizing the assets and transferring them to other owners) because the counterparty has seized your assets is a vastly different thing. There's no reason that holders of US debt would get nervous if they weren't planning to seize US assets themselves.

[KrazyHorse]

My guess is that there is some accepted legal method for those whose assets were hypothetically seized by China to sue in US courts for compensation of Chinese-owned assets in the US (and a mechanism to freeze accounts quickly). The question was about the mechanics of it; if China held its fx assets in currency held in Chinese Fort Knox rather than Treasuries booked electronically on a US exchange then it would be impossible to seize their assets (renege on debt) unless you knew the serial number of every bill the Chinese were holding and were willing to invalidate those specific bills (and presumably print up new bills with different serial numbers and hand THOSE as seized assets to the damaged parties).

[snoopy369]

If we went to war with China (say, they declared war on us, or gave us a world-considered-valid causus belli), would we cancel all of their treasuries as well, I wonder? Serious war, not something pithy like Vietnam or Korea, but actual no-holds-barred (except nukes) massive conflict.

[KrazyHorse]

Assuming the US won it would probably seize the debt as war indemnity.

[Felch]

I misread the OP. Yeah, if you have a good reason (China seizing US factories), you can take pretty much anything.

[KrazyHorse]

That's cool. You brought up an interesting tangent. The history of banking in Europe in the Rennaissance/Enlightenment and bankers' relationships with the monarchies is a fascinating subject.

[Kuciwalker]

Assuming the US won it would probably seize the debt as war indemnity.

Wouldn't we want to invalidate the debt before we won, to prevent China from selling it to buy arms and such?

[KrazyHorse]

I was assuming an immediate freeze on the assets. Even if total seizure didn't take place this would be standard.

[DanS]

This has happened before, albeit on a smaller scale, and the US froze assets rather than defaulted. Iraq had $8 billion or so in US assets, which were frozen when Iraq invaded Kuwait. Mostly, it became food for vulture attorneys who sued the Iraqi government on flimsy grounds. Iraq found it difficult to field attorneys to defend against the claims.

Also, you might look at the Cuban revolution. There are outstanding claims, even 50 years later -- probably because there were few Cuban assets to seize in the US.

Lastly, Exxon sued Venezuela upon nationalization of its concessions by Chavez. If successful, that would have led to seizure of assets in other countries. That was a very recent case, but I don't know how that turned out.

[OzzyKP]

If major powers went to war today, I wonder whether an "electronic front" would open up. Hackers trying to steal funds from the other country, mess with the internet, etc.

[KrazyHorse]

This has happened before, albeit on a smaller scale, and the US froze assets rather than defaulted

When the assets are your own debt then the difference is merely vocabulary.