Analysis: What is Plan B if China dumps its U.S. debt?

This is a good idea regardless of the circumstances.

When borrowing money it's always good to have a Plan B in case a big creditor pulls the plug. That should be true whether the sum is a few thousand dollars or about a trillion, the size of the United States government's debt to China.

In the case of world economy you have to know who your friends are and make sure they are still happy helping you out.  In the case of China they have helped carry a large portion of the US debt for a long time in exchange for some of the things the US can provide them with.  Namely exports.  Now if China decides it needs money (which seems to be the case given their rapid rise in inflation) they will start selling treasury notes to the highest bidder.

This buying and selling of loans is not new, banks do it without home loans all the time, but in the case of world economy it seems like a much bigger deal.

It likely would take something like a massive rise in tensions over an issue like Taiwan or oil exploration in disputed areas of the South China Sea, including possible military confrontation between the two nations. Such a confrontation would also make it easier for Washington to appeal to the American public to buy its debt for patriotic reasons.

Let's hope this doesn't happen (for a variety of reasons).  If in fact something like this does go down the US may be forced to have US citizens buy up bonds to support the country.  Given the current state of the economy asking citizens to buy up bonds in the numbers they need could be a hard sell, even if it is the responsible thing to do.

Related Web URL: http://www.reuters.com/article/idUSTRE70H5NX201101...