China preparing to call in its loans to the US

Some in China ready to drop U.S. holdings and pour money into nation

11:33 AM CDT on Sunday, September 19, 2010
By JIM LANDERS / The Dallas Morning News


BEIJING – China's young bankers and budding economists are part of a wired, frustrated generation looking for their inheritance.

They've enjoyed the savings of their parents to get this far. Now they are looking to collect their due from another source – the money China has loaned to the United States.

The Council on Foreign Relations estimates that China holds at least $1.4 trillion of U.S. debts, plus $231 billion in corporate bonds and equity. That amount works out to a loan of roughly $4,500 to every American.

This debtor-lender relationship between America and China is a "financial balance of terror," as White House adviser Lawrence Summers once put it. If China sold its dollar holdings, U.S. borrowing needs are so great that the sale could cause a spike in interest rates and push America back into recession.

But if the U.S. decided to cover its debts by printing more money and pushing up inflation, China's investments could drop in value by hundreds of billions of dollars.

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