|
If China "dumps" our debt, they will be doing exactly what we want them to do...appreciating their currency. They're basically selling dollars for yuans. Our exports and services will become more attractive in the current account balance while China's will become less attractive and more expensive. Additionally, the price of bonds will fall, causing yields to rise. Right now, the yield curve is f'ed up. This sell-off would hopefully put upward pressure in the middle part (3,5,10 yr) of the curve returning it to a somewhat normal upward sloping shape and bringing some much needed sense to capital markets.
That being said...China has no real incentive to dump our debt as long as they have a current account surpuls. US Treasuries aren't going to lose credit ratings because of this. The U.S. goverment has never defaluted or ever will default on its securities. They're the safest most boring instruments in the market. So
|