Why China and Japan are praying the US won't default | CNN Business (2023)

FAQs

Why China and Japan are praying the US won t default? ›

Chinese state news agency Xinhua published a column earlier this month, highlighting the “symbiotic relationship” the countries have in the US bond market. “If the United States defaults on its debt, it will not only discredit the United States, but also bring real financial losses to China,” it said.

Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.

The consequences of a default would be enormous, both for the nation and the world. If the debt ceiling isn't raised in time, Treasury and the White House will have to make difficult decisions about which bills to pay with the funds that are available. The US has never missed making payments on its bills before.

The US has never intentionally defaulted on its debt before (the US technically, but accidentally, defaulted in 1979 due to what Treasury identified as a check processing issue.

After 60 years there is still no prospect of a true reconciliation between China and Japan. The recent visit by Junichiro Koizumi, Japan's prime minister, to a war shrine in central Tokyo was condemned by the Chinese.

Today, the United States imports more from China than from any other country, and China is one of the largest export markets for U.S. goods and services. This trade has helped the United States in the form of lower prices for consumers and higher profits for corporations, but it has also come with costs.

United States. The United States boasts both the world's biggest national debt in terms of dollar amount and its largest economy, which resolves to a debt-to GDP ratio of approximately 128.13%. The United States' government's spending exceeds its income most years, and the US has not had a budget surplus since 2001.

To pay back one million dollars, at a rate of one dollar per second, would take you 11.5 days. To pay back one billion dollars, at a rate of one dollar per second, would take you 32 years. To pay back one trillion dollars, at a rate of one dollar per second, would take you 31,688 years.

In fact, Treasuries are a logical investment for a country with high foreign currency reserves. China currently holds almost 11.96% of U.S. foreign debt.

If a country can't pay its debts, it is in default. This lowers its credit rating and decreases the cost of its debt. The country's entire economy can suffer, and it may see less investment in the future as global investors become wary of buying that country's debt.

Does debt go away after 7 years in USA? ›

A debt doesn't generally expire or disappear until its paid, but in many states, there may be a time limit on how long creditors or debt collectors can use legal action to collect a debt.

Total U.S. national debt was $31.38 trillion as of January 2023.

By January of 1835, for the first and only time, all of the government's interest-bearing debt was paid off. Congress distributed the surplus to the states (many of which were heavily in debt). The Jackson administration ended with the country almost completely out of debt!

The national debt is an accumulation of federal budget deficits. Each new spending program and tax cut adds to the debt.

Bilateral Relations:

At the same time, the relationship with China is one of Japan's most important bilateral relationships, and the two countries have close economic relations, as well as people-to-people and cultural exchanges.

Companies from Japan, the United States and other nations are accelerating their moves to shift production out of China, to lessen the risk of disruption in their supply chains due to abrupt changes in Chinese government policy and turmoil following the spread of COVID-19.

If China had surrendered in 1938, Japan would have controlled China for a generation or more. Japan's forces might have turned toward the USSR, Southeast Asia, or even British India. The European and Asian wars might never have come together as they did after Pearl Harbor in 1941.

It has become a global expectation that China's total economic size will surpass that of the US in the next decade or so, and as long as China focuses on developing itself well, this result will be achieved naturally.

BEIJING — The U.S. economy could lose more than $1 trillion worth of production and long-term global competitiveness if the White House pursues a sharp separation with China, according to a report released Wednesday by the U.S. Chamber of Commerce and Rhodium Group.

What would happen if the US stopped importing from China? ›

This data suggests that if U.S. hypothetically stops buying Chinese goods, China's export will suffer a 18% loss, which accounts for 18%*20% = 3.6% of China's GDP. It is unlikely a 3.6% loss in GDP will collapse the Chinese economy.

A low level of debt shows less reliance on foreign borrowings. The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.

At the end of 2021, of the 98 countries for whom data was available, Pakistan ($27.4 billion of external debt to China), Angola (22.0 billion), Ethiopia (7.4 billion), Kenya (7.4 billion) and Sri Lanka (7.2 billion) held the biggest debts to China.

U.S. debt, long viewed as ultra-safe

A default could shatter the $24 trillion market for Treasury debt, cause financial markets to freeze up and ignite an international crisis.

The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government.

The countries with the biggest debt burdens in relative terms were Djibouti and Angola, followed by the Maldives and Laos, which opened a debt-laden railway line to China last year.

United States - Federal Government; Net Worth (IMA), Level was -20997153.00000 Mil. of $ in July of 2022, according to the United States Federal Reserve.

The value of U.S. Treasury securities held by residents of Russia amounted to 67 million U.S. dollars in January 2023, having declined by 89 percent from the previous month. Furthermore, in March 2020, the figure decreased sharply to 3.85 billion U.S. dollars, down from 12.6 billion U.S. dollars one month prior.

Why can't the US make money to pay off debt? ›

The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse.

The biggest private default in history is Lehman Brothers, with over $600 billion when it filed for bankruptcy in 2008 (equivalent to over $750 billion in 2021). The biggest sovereign default is Greece, with $138 billion in March 2012 (equivalent to $173 billion in 2021).

Excessive debt can undermine economic performance when it is followed by transfers that are economically suboptimal. More importantly, these transfers can set off financial distress behavior that undermines subsequent growth, in many cases substantially.

Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.

If you ignore a debt in collections, you can be sued and have your bank account or wages garnished or may even lose property like your home. You'll also hurt your credit score. If you aren't paying because you don't have the money, remember that you still have options!

You can ask for an inaccurate default record to be updated or removed by raising a credit report dispute. Here's how to do this: Get your credit report to see the default entry. Get in touch to tell us how and why it should be changed.

To do this, you'll need to contact the three main credit reference agencies and raise something known as a 'credit report dispute'. When you do this, the agency will contact the lender who issued the default to check that it should be removed. In the meantime, they will put a 'Notice of Correction' on your file.

Countries defaulting on their debts is rare. But it does happen. The most common causes of sovereign defaults include economic stagnation, political instability, and financial mismanagement.

The stock market will certainly take a hit if the U.S. defaults on its debt. At moments, the losses could seem significant to anyone with investments or retirement accounts. But for those with diversified portfolios who aren't nearing retirement, investment experts advise that you stay the course.

Why did the US not intervene when Japan invaded China? ›

On the one hand, they opposed Japanese incursions into northeast China and the rise of Japanese militarism in the area, in part because of their sense of a longstanding friendship with China. On the other hand, most U.S. officials believed that it had no vital interests in China worth going to war over with Japan.

The United States was particularly unhappy with Japan's increasingly belligerent attitude toward China. The Japanese government believed that the only way to solve its economic and demographic problems was to expand into its neighbor's territory and take over its import market.

American war planners projected that a land invasion of Japan could cost the lives of up to a million U.S. soldiers and many more Japanese. These figures, Giangreco explains, were estimated based on terrain, the number of units fielded, and the number of enemy units they would have to fight.

Do you lose all the money if the stock market crashes? No, a stock market crash only indicates a fall in prices where a majority of investors face losses but do not completely lose all the money. The money is lost only when the positions are sold during or after the crash.

When a stock tumbles and an investor loses money, the money doesn't get redistributed to someone else. Essentially, it has disappeared into thin air, reflecting dwindling investor interest and a decline in investor perception of the stock.

Stock market crashes wipe out equity-investment values and are most harmful to those who rely on investment returns for retirement. Although the collapse of equity prices can occur over a day or a year, crashes are often followed by a recession or depression.

While the overall Japanese deaths attributed to the atomic bombs were between 129,000 and 226,000, the continuation of the war could have resulted in far, far greater numbers of Japanese deaths. The U.S. government estimated that invading the Japanese Home Islands would cost 5 to 10 million Japanese lives.

Since the end of World War II, Sino-Japanese relations are still mired with geopolitical disagreements. The enmity between these two countries emanated from the history of the Japanese war and the imperialism and maritime disputes in the East China Sea.

Seeking raw materials to fuel its growing industries, Japan invaded the Chinese province of Manchuria in 1931. By 1937 Japan controlled large sections of China, and war crimes against the Chinese became commonplace.

To a certain extent, the conflict between the United States and Japan stemmed from their competing interests in Chinese markets and Asian natural resources. While the United States and Japan jockeyed peaceably for influence in eastern Asia for many years, the situation changed in 1931.

When did Japan and US become enemies? ›

Therefore they were stunned when the unthinkable happened and Japanese planes bombed the U.S. fleet at Pearl Harbor on December 7, 1941. The following day, the United States declared war on Japan, and it soon entered into a military alliance with China.

The Fate of the Pacific Fleet at Pearl Harbor. From mid-1940, when FDR moved the US Pacific Fleet from San Diego to Pearl Harbor, long-simmering tensions between the United States and Japan reached a new state of intensity. Japan had been embroiled in a brutal war of conquest in China since 1937.

At the most extreme, no attack on Pearl Harbor could have meant no US entering the war, no ships of soldiers pouring over the Atlantic, and no D-Day, all putting 'victory in Europe' in doubt. On the other side of the world, it could have meant no Pacific Theatre and no use of the atomic bomb.

The alliance began during the U.S. occupation after World War II. The United States pledged to defend Japan, which adopted a pacifist constitution, in exchange for maintaining a large military presence in the country.

Geographic feasibility

Many experts have considered the US practically impossible to invade because of its well-funded and extensive military, major industries, reliable and fast supply lines, large population and geographic size, geographic location, and difficult regional features.