What will happen when China stop lending money to US - Watch out!

All of a sudden if your boss slashes your income when you have no savings and your creditors start threatening you to cancel your credit cards, what exactly will happen to you? You must try your hand on debt settlement program to come out of this problem. However, you must be shocked to know that US government has been undergoing similar situation and facing lower income tax receipts as well as ballooning deficits. Foreign bankers, especially China were extremely worried regarding this economic turbulence. We really wonder what will happen, once China loses its appetite for extending more and more loans by buying U.S. Treasury securities. To learn this matter more explicitly, read the rest of the article first.

China is known as the single largest foreign holder of U.S. Treasuries and the money it lends to the Feds, generally finances significant budget discrepancies in US. It is being found currently Americans have been paying almost $450 billion a year in interest on the national credit card; without that debt to pay off, personal income taxes could be almost 40 percent lower.

China seems to be really worried regarding this entire issue and their restiveness is prevalent from Premier Wen Jiabao’s comments to the reporters in Beijing. He commented "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets." China has made a huge amount of loans to the United States and the deadbeat state of US economy made them highly concerned about the safety of their assets. China's premier may be apprehensive about the possibility of the U.S. running into so much debt that it may not be able or willing to pay it back without devaluing the currency. If this happens in near future nothing can stop worldwide inflation down the line.

On the other hand, US White House is putting its best effort to reassure its Chinese creditors. Spokesman Robert Gibbs has pronounced "There's no safer investment in the world than in the United States." It's quite unlikely that China would abandon its Treasurys; for this insignificant issue, and substantial sales would depress prices of the rest of its portfolio. The Wall Street Journal further suggests that the gold market isn't large enough to represent a viable option, and "it's not clear, meanwhile, that euro, or yen-denominated debt is any safer, more liquid, or profitable than U.S. debt -- key criteria for China's leadership."

However it seems China is not thoroughly convinced and eventually losing its patience. As a result less ravenous appetite for Treasurys is already evident in China and they are planning to reduce or halt future purchases. The reason might have been quite obvious, which is diversion of money toward China’s own 4 trillion Yuan ($586 billion) stimulus package.

Few positive steps have already been initiated by U.S Government in this regard. The Secretary of State Hillary Clinton pleaded the Chinese government to keep the loans flowing to Washington, D.C as a sign of interconnection. As an immediate consequence, at least in part, U.S. taxpayer dollars were used to bail out Fannie Mae and Freddie Mac last year. Because of their intertwined economies, both countries have realized they need each others help and support to deal with the current economic hardship.

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