I’m with you: so, if they dump US treasuries the bonds become with more. So they are selling cheap and increasing the value of the 85% of debt WE hold? Sounds stupid to me.
It won’t increase the value of the present debt, only the future debt, unless you are lucky enough to to get some of those discounted Chinese-held bonds.
The Treasury also called in many of their long-term high-interest bonds in exchange for cheaper short-term bonds several years ago, so if the Congress can rein in deficit spending, the impact won’t be too bad.
No. Bonds are sold based on the value of the rate at which they were issued, time remaining, etc.
There is a bond market, entities that want to purchase bonds. U.S. bonds on the secondary market compete with U.S. bonds on the primary market. So traditionally, If we want to sell $100 billion in bonds, we have to offer an interest rate on them sufficient to entice $100 billion in purchases. Secondary bonds are just as "good" as primary bonds, so imagine that we a selling cars. We produce the exact same model every year and sell "X" number of them. China has been buying them, and storing those brand new cars to sell themselves on a rainy day. Now the Chinese bring $100 billion in our brand new cars to the market, at the same time that we are trying to sell $100 billion in the same cars. What happens? At the standard price, there aren't enough buyers. The Chinese can discount their bonds to unload them, if they really need the cash, but we must service our giant debt, so we will have to compete by raising the rates on those bonds to attract more buys. 5% of $20 trillion is $1 trillion. If rates go to 1982 levels, we'll need $4 trillion to just pay our interest, and we don't have it.