A friend of mine asked me a deviously simple but complex question to which I do not know the answer. I was hoping that my esteemed readers might have an answer or know a source to go to for the answer. The question is:
When (not if) China decides to ask for all of its money back from the US government bonds that is owns, what happens if we cannot pay them? Do they get a lien on government owned property? A lien on all financial assets, like your 401(k)? Can they go after individually owned property, like your home or business?
A lender (like the bank for your home) has certain rights that are written out in an agreement like your mortgage. However, when the government issues bonds, there is no formal arrangement other than the promise to pay interest. The lender can return his bonds to the government and demand money for the current value. So what happens if there is not enough money?
I think it is a good question. What do you think? Please let me know.