I just heard on the news that China will hurt the US economic if we apply sanction on them how can this be.?

Question

Can someone explain to me in laman terms how can they do this. It was reported that they would flood the US dollars or Treasury bond into the world or something like that. This is why I'm not into stocks or don't understand it.

Answer 1

The US incurs a national debt (money borrowed from other nations) by selling treasury bonds.

China has bought up a big chunk of those bonds.

Technically, if China wanted to, they could cash in those bonds and call up the debt (loan) and the US would have to pay off those bonds. This would damage our economy because we don't have the money to pay off this debt (that's why it's a national debt and not a national surplus).

In reality, China would More than likely not do this because although they could hurt our economy, their economy would suffer a big blow as well as we are one of the biggest importers of products from China.

Answer 2

they COULD sell the bonds they hold driving the price way down in the bond market. That means when the Gov needs to issue bonds they must sell the bonds at the market price (the very low market price). This means that in order to raise the money they must have to pay for the deficit they must issue way more bonds which lowers the market price even more.
For example
say the current price for $100 bond is $90. that means I pay 90dollar to own the bond then when the bond is due I get 100 bucks.
same the Gov is spending more then they take in (not hard to imagine that one) so they need $270. They issue 3 bonds to raise the money now. In the future they will pay 300 dollar when the bonds come due.
Now China floods the bond market. The price goes down to $30. It is great for people buying the bonds I now can buy 3 bonds for the same amount of money as before but I'll get 300 bucks. BUT now the gov has to issue 9 bonds to raise the 270 dollar that they must have and in ayear or so they will have to pay 900 dollars which then makes a large deficit

and so on
hope that helps

Answer 3

The China's central bank holds a large amount of US bonds and dollars as their reserve currency which has acted as way to finance the large trade imbalance we have with them and the world. If they decided not to continue holding dollars the value of the dollar could fall suddenly vs other world currencies. This could cause a financial crisis which would damage our economy and Imported goods in the US would become more expensive so US consumers would see prices rise. However China would also loose by doing this. The dollars and bonds they still hold would become less valuable and their goods would become more expensive in the US so they would loose much of their market for their goods here. This would probably hurt them more than the sanctions would.

Note: the exchange rates between currencies is determine by market traders and the law of supply and demand. So if China exchanged dollars for other currencies the supply of dollars would increase which would cause the "price" of dollars in other currencies to fall.

Answer 4

to no longer hardship toddler, methinks they like us lots greater effective than than the democrats prefer them, besides bill bought them the incorrect missile training structures, why else could johnny hseu come lower back over right here chairman mau's grandson bought it to N.Korea and you observed what exceeded off to their fizzler final summer season damn element replaced into as crooked in flight as a piccolo Pete with the the top smashed close you thought bill replaced into making effective with obama however the actuality is he's hiding out from johnny h think of no longer? next time you notice bill word what number black fits are around him

Answer 5

I heard that we borrow a lot from them.