Could the US selectively default on Chinese-held treasuries?

[Arrian]

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.

Like in Debt of Honor?

-Arrian

[Victor Galis]

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.

Actually, sovereign debt defaults of the previous century show that defaulters get fresh access to credit within a few years of defaulting. Even the serial defaulters.

Obviously, the US would face some other consequences related to the collapse in the dollar's prominence associated with defaulting. I suspect the likelyhood of an actual US default is fairly tiny.

[Dauphin]

I already told you the story of the guy who forgot to close his position and had like 5000 oz of platinum show up at his office, right?

Remind me what Clearing Houses do.

[DanS]

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

Well, there is a legal difference and a functional difference. But for our purposes here, they are similar enough. That's why I continued to name the cases that I remember off the top of my head.

[KrazyHorse]

Remind me what Clearing Houses do.

Chooses the counterparty to make the delivery, AFAIK.

???

[KrazyHorse]

http://en.wikipedia.org/wiki/Futures_contract#Exchange_versus_OTC

Exchange versus OTC

Futures are always traded on an exchange, whereas forwards always trade over-the-counter, or can simply be a signed contract between two parties.

Thus:

* Futures are highly standardised, being exchange-traded, whereas forwards can be unique, being over-the-counter.
* In the case of physical delivery, the forward contract specifies to whom to make the delivery. The counterparty for delivery on a futures contract is chosen by the clearing house.

[Dauphin]

http://www.lme.co.uk/what_warehouse_physicaldelivery.asp

Delivery against LME contracts is in the form of LME warrants, which are bearer documents of title enabling the holder to take possession of a specified parcel of metal at a specified LME approved warehouse. Each LME warrant is for one lot of metal, the tonnage of which is dependent on the contract specification. The front of the LME warrant displays information about the parcel of metal, including its brand, the exact tonnage, the shape and the location.

[KrazyHorse]

Well, there is a legal difference and a functional difference. But for our purposes here, they are similar enough. That's why I continued to name the cases that I remember off the top of my head.

Functionally, defaulting on a debt is the same as seizing the debt.

Similarly, defaulting on a debt then issuing identical new debt for free to some individual is the same as seizing debt then transferring it to said individual.

[KrazyHorse]

http://www.lme.co.uk/what_warehouse_...aldelivery.asp

Delivery against LME contracts is in the form of LME warrants, which are bearer documents of title enabling the holder to take possession of a specified parcel of metal at a specified LME approved warehouse. Each LME warrant is for one lot of metal, the tonnage of which is dependent on the contract specification. The front of the LME warrant displays information about the parcel of metal, including its brand, the exact tonnage, the shape and the location.

a) I'm not sure if all exchanges work the same

b) It might have been a forward contract, in which case all bets are off

c) The guy who told me the story might have been lying (?)

[Dauphin]

In my experience the whole thing sounded implausible, so I would go with c)

[KrazyHorse]

Maybe. He is, however, chair of an entire department at Hopkins.

[Dauphin]

Does that make you more honest?

[Naked Gents Rut]

Physical delivery does happen on occasion. It's far more common to pick up at a warehouse, however. And cash settlement, of course, is much more common than either.

[KrazyHorse]

Does that make you more honest?

It gives him less reason to try to lie to me to impress me.

[TCO]

Might hurt our credit rating for borrowing from other people.