Why is China buying up US debt?

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Temesra

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#1 Temesra
Member since 2012 • 157 Posts

Why is China and other countries buying up US debt and getting really rich of the US debt by buying up US debt and charging interest to the US.

Is the US getting so out of control with its spending and have no money it needs to sale some of its debt to get money from other countries well other countries are charging interest.

Why they allow US to sale debt to other countries like China and China is getting rich of US debt.

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madrocketeer

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#2 madrocketeer
Member since 2005 • 6933 Posts

Due to its strength, stability and ubiquity, the US Dollar is the world's favourite reserve currency, hence countries prefer to convert their reserves to USD instead keeping them in their own currencies. This in turn makes US Treasury bonds highly sought after, so the US government sell them to finance their debt and keep on borrowing.

After all, when you basically have a license to print money without worrying about inflation, why not use it?

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Kadin_Kai

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#3 Kadin_Kai
Member since 2015 • 727 Posts

@Temesra: Firstly US debt is the sale of US government bonds, US Treasuries or T-Bills for short.

The US government sells these bonds because they spend more than they earn. The US as a whole has been perpetually living beyond its means for decades.

The money borrowed by the US government goes into the economy and filters through to the general public. (Think about a soldier who is paid and he spends his money).

Countries such as China and Japan (highly export orientated countries) buy this debt so the US can continue to live beyond its means and buy a load of stuff.

Since the US is a massive importer, countries such as China and Japan encourage the US to borrow and buy their exports.

The US dollar is also attractive, the US is still the largest economy in the World and you would not expect it to default on its debts! Or would it??

But yes, the US government spends too much and earns too little.

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comp_atkins

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#4 comp_atkins
Member since 2005 • 36103 Posts

japan and china are are the major foreign holders of US debt, but combined only hold about 10% of the actual debt.

about 1/4 overall is held by foreign entities.

https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124