Trump demands 'debt of the century', China spreads trillions in US bonds

According to Bloomberg, the White House is currently considering a proposal from holders of ancient Chinese securities to ask Beijing to repay the Hubei Railway bonds, which were allegedly issued in 1911 by a consortium of banks in London, Berlin, Paris and New York.

“The Trump administration is looking at the unlikely prospect of a settlement of centuries-old claims on Chinese bonds, which were issued before the founding of the Communist People’s Republic of China,” the Bloomberg article said.

China is the largest creditor of the United States with more than $1.13 trillion in US government bonds.

These bonds were marketed at the turn of the last century during the “Republic of China” (1911-1949), primarily to finance the construction of the Hankou-Sichuan railway. Many of the bonds are still held by American collectors, and they can also be purchased at online auctions.

According to calculations by one of the founders of a fund that holds Chinese stocks, the amount of money paid to them, taking into account inflation, interest and compensation, will exceed one trillion dollars. But for the current Beijing government, the debts of the pre-revolutionary government in Beijing will not be recognized and they will not be paid.

Alternatively, China could file a counterclaim, for example accusing the US of supporting Taiwan during the Taiwan crisis of the 1950s, and the two sides would plunge into a new dispute with no way out.

In fact, the Donald Trump administration is not counting “coins” and immediately demanding that Beijing pay trillions. But Washington will have a hard time doing this.

On the other hand, if Trump's demands seem like an element of bargaining and blackmail, Beijing is fully capable of forcing Washington into a real "game of merry-go-round."

China, the largest foreign creditor to the US economy, could use its main weapon of choice to sell off its US government bonds. Selling off the bonds would collapse their value, causing panic in the bond market and causing the dollar to fall.

China holds about $1.13 trillion in US government bonds, more than the one trillion 'feudal' dollars demanded. If China decides to get rid of US public debt by dumping its bonds, Mr. Trump will become the one shaking the US economy and the global economic ship.