It's not a fantasy about war, it's a statement that they can't force us to pay back. People want to sit and say "they won", but this was the sucker bet. They lent us money, we'll use inflation to pay them back in dollars worth less than what we got.
I wasn't talking about winning or losing, just economic facts.
Furthermore, this has caused artificial inflation of the Chinese currency since their banks are all government run with strong rules; their banking must be done in their currency. So when they buy our debt, they buy in US dollars, but then they have to use their banks to convert to yuan. If deflation hits, then they are in even more trouble since it starts become viable to move more production State side. China's already taking that hit.
I see your line of thinking, but it's not accurate. China is suffering now because its market is intimately tied to the U.S. market, which is currently in recession. This is why China continues to buy U.S. currency shares, since so many others are bailing out of their stocks due to the collapsing market. If the U.S. crashes, China crashes even harder. Policy analyst in China have questioned this approach though. How long can you keep afloat a sinking ship really?
They can go ahead and off load our debt to whomever they want, it will have no affect on us. Those are loans already made, we already have that money. The important thing about that debt is the other way around, it's the guarantee that America will pay it back that people now find valuable. It's based in part on the strength of American consumerism. Usually a good bet. But facts remain, our debt is written in our dollar, we can make our dollar. Now we're not going to just print off the debt of course, but the point is that our debt is written in a fiat currency that we control.
The U.S. makes its own currency, sure, but it's the market that determines its value. Currency operates on the principle of supply and demand just like any other commodity. If the U.S. economy begins to tank, then people will sell their currency shares because the value of the dollar is not making them as much profit. In turn, the value of U.S. currency drops. China, in the past, has allieviated this problem by purchasing treasury shares in order to prop up the dollar in the name of its own interests. China is the ultimate bail-out, even beyond the current recession problems.
This is why if China dumps its currency shares onto the market, supply of U.S. currency shares will skyrocket and the value will plummet. Sure, people would probably buy it back over time, but trillions of dollars in currency shares won't be bought up over night. And what would be the incentive if the value of those dollars was now worthless?
We already use inflation to our advantage on this already (inflation is good to debtors). No one can control us by holding our debt, they can't call it it.
Not strictly speaking, no... and I don't think China would ever play that card because it would damage its own interests. But technically, it has the ability.
First off, we can manipulate it to be advantageous to us. Secondly, how would the force us? And WTF would happen to someone like China if we said "no"? They'd be screwed. Big debtors hold power over lenders because the lender has to get that money back.
Well, China also owes the U.S. money, but its domestic growth rate has been approx. 10% annually for the past 10 years and it is increasingly in a better position to pay off debt. However, the amount of U.S. debt China is shouldering is larger than other nations. Your methodology would work if debt was distributed evenly, but it's not. A great deal of the chips are in one pile.
At any rate, there will be no war with China... if there were, the U.S. would be shooting itself in the foot.