Caveat emptor

The Chinese are sternly warning the Americans not to default on their debt:

Mr Zhu said that China and the US are "inseparable". Beijing is a huge investor in US Treasury bonds.
"The executive branch of the US government has to take decisive and credible steps to avoid a default on its Treasury bonds," he said.
Google found me the major foreign holders of US debt as of July 2013:
  1. China: $1.3 trillion
  2. Japan: $1.2 trillion
  3. Caribbean banking centers: $300 billion
  4. Oil exporters: $260 billion
  5. Brazil: $260 billion
I'm reminded of the maxim: "Borrow $1000 and the bank owns you; borrow $1 million and you own the bank." China's GDP is about $8 trillion, so US debt that it owns is about 12% of GDP. Japan's GDP is about $6 trillion so US debt that it owns is 20% of its GDP. Is China seriously concerned that the US might default on its debt? If Japan is similarly concerned, it seems to be keeping very quiet.

I expect that the problem arises from the Chinese banks relentlessly trying to get out of yuan before the Chinese economic bubble starts to pop. There are huge flows of money out of China to buy dollar-denominated assets; million-dollar houses all over Silicon Valley are being bought up for cash by Chinese buyers. As a data point, friends of mine who just put a $800K townhouse on the market in the South Bay were almost immediately given a cash offer by a Chinese couple wanting to buy a house for their daughter to live in when she goes to college in late 2014. If the US were to even threaten default, the dollar would drop significantly in value - in the past three months alone, the pound has risen from $1.50 to $1.60 due to the concern about the US political situation. If Chinese banks have leveraged investments in dollar-denominated assets, the shockwaves from even a technical US default could land them in very hot water.

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