I know a thing or two about economics, but I am far, far, far from calling myself an expert or even reasonably knowledgeable. With that prelude, can someone explain this:<p>If China is getting lots of dollars from selling goods to the US, and then buying lots of US Bonds to keep those dollars out of the Chinese economy, presumably the bonds are just being held somewhere. They represent a promise from the US to China that says "Those goods you sold us? We haven't really paid for them yet, but at some point in the future we will, with a bit of interest."<p>So at this point the goods have changed hands, the Chinese workers have been paid in Yuan, and the Chinese government is holding the excess USD value of those goods in a big pile of paper.<p>What happens if the US says to China "You know what? We're not going to be paying you for those goods afterall. Sorry about that."<p>Obviously, this will piss off China, but let's ignore the political ramifications. What are the economic consequences? The pile of paper is now worthless, so the net worth of the Chinese government drops. Does that matter? The dollars aren't part of the Chinese economy, so there shouldn't be an impact there. Is the Chinese government using their US Bond portfolio as an asset to back borrowing from other countries? Is it counting on the interest to fund future spending? (Risky gamble if they are.)<p>Going forward, the Chinese probably won't be so willing to buy more US Bonds, which would be understandable, and other countries and individuals might be wary as well. But maybe not, if it's framed as a one-time reset of our debt (kind of like a bankruptcy) and there's some changes to the way our debt is managed to make sure it doesn't get out of control again. (Maybe an amendment to hold all living US politicians, past and present, personally accountable for a proportion of the US debt weighted by the height and duration of their office.)<p>So, maybe we could still sell bonds, and maybe not. If the Chinese stop buying, they're going to have to come up with another way to keep USD out of their economy if they want to continue selling goods to the US. That makes me think they'll keep buying the bonds, especially if there's no material impact from writing off the value of the existing bonds. Or maybe they'll buy other things from us. They want a navy, and we've got a bunch of ships mothballed in various states of disrepair and a need to earn revenue without selling bonds, so maybe a deal can be struck there. It's got to be cheaper to cleanup and retrofit an old ship than building a new one from scratch, even if it's less impressive. They can use the old ones for support ships or something.<p>Here in the US, I don't think we'd be likely to see fewer Chinese goods coming in or their prices raised, because both of those would be detrimental to the Chinese. We'd definitely have to get government spending under control because we couldn't sell so many bonds (if any), but we need to do that anyway. Zeroing out a big chunk of the existing debt will eliminate a lot of interest payments, which would help a lot.<p>So, does the reluctance to do this all come down to the reputation of the US Government and the US People's ability to pay back the debt we've accumulated?