People who already own them won't be affected unless they sell prior to maturation. But potential buyers wouldn't be as prone to buying them.... making them worth less. Meaning the yield would have to increase in order to sell the same amount. Meaning the US gov't would have to pony up and pay higher interest. So it doesn't screw individual AMericans, except in the sense that the debt incurred by gov't is ultimately borne by individuals.
... the U.S. government (it has to pay back face value either way...
Don't forget the interest it pays. Remember a major reason folks buy those things is to get the interest.
Actually, people would be prone to buy more. The supply of bonds trading on the given day China decided to sell would increase, thus lowering the price. The effective yield therefore increases, making the bonds more attractive. That's why I said they'd probably be bid right back up again the next day. The US Treasury market is the most liquid securities market in the world. Not only would it not influence the price too greatly if China dumped $81 billion on the market (out of several Trillion dollars outstanding), but the liquidity of the market would ensure that only economic and financial fundamentals would affect the long-term bond price, not China merely dumping $81 billion on the open market. Don't forget the interest it pays. Remember a major reason folks buy those things is to get the interest.
Right. Good point. The problem with China, or any corrupt totalitarian dictatorship, owning our debt is that we pay them interest, effectively helping their regime. That is a moral problem, though, not necessarily an economic one.