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Bond investment

If China demands that America pays back all of its debt right now, would Donald Trump allow it?

If China started demanding that America pay back all of its debt right now, would Donald Trump allow it?

That isn’t how America’s debt works.

China - and other countries, banks, investors and people - buy United States bonds that have a fixed value and a fixed redemption date. No one can demand payment early - they would be laughed at if they tried. However if they needed to sell, they could sell their U.S. Bond to a third party. So, for example, if I owned a $1,000 Bond that was due in December 2021 and needed to sell it now, I couldn’t force the United States to give me my money, but I could sell it to someone else for whatever price I could get for it. So China can not demand that America pay back all of the money we have borrowed from them.

However, what China COULD do is stop buying new bonds from the United States. Now, China isn’t the only one who buys U.S. Bonds, but they do buy a significant amount of them. The sudden drop in demand for U.S. Bonds would impact the amount of money the United States could borrow, and would have ripple effect throughout the bond markets that would affect the value of U.S. Bonds on the secondary market (i.e.: it would effect me, in the example above).

Note: this is actually simplified for ease of explanation. Things are actually a bit more complicated than this.

Content created and supplied by: SeyiSamOlu (via Opera News )

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