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Results in a positive impact on the economy of the United States.Ultimately, the U.S. will receive a significant amount of money, allowing it to stimulate its economy and gain funds towards paying off its national debt.
By Peter Huessy In 1987, threatened with being kept out of the British financial markets, China acknowledged the debt by paying British citizens who owned these same bonds. By paying the British bondholders, but no other owners worldwide (including U.S. bondholders), China “selectively defaulted” on these bonds. Currently, the People's Republic of China owes a debt of over $750 billion to American citizens who are holding full faith and credit sovereign bonds sold to them by the Republic of China. Worldwide, the debt China owes to all bondholders is estimated to be several trillion dollars. These facts are not in dispute by the U.S. Treasury Department, the White House, Congress or the State Department. In fact, an official at the Treasury commented that, "Yes, the bonds are real and yes China owes it and should pay it; however, good luck collecting it as China doesn't really want to pay it".
So behind what U.S. or international loophole, guideline, or precedent does China hide to keep from having to pay their debt to these bondholders? The answer is simple: None! They simply choose not to pay and no commercial, regulatory or government entity is holding their feet to the fire! China simply ignores the issue and our own government would rather not have to deal with it and risk "angering the dragon". Yet China continues to enjoy open and unfettered access to U.S. capital markets, has excessive cash reserves and a strong credit rating which the credit rating agencies (Standard & Poor's, Moody's and Fitch) are continually upgrading. (NOTE: In reality and in truth, China's credit rating status should be "Selective Default" according to the rating criteria established by the credit rating agencies, and which they submit to the Securities and Exchange Commission to obtain NRSRO (Nationally Recognized Statistical Rating Organization) .
It’s no secret that trade between the United States and China is severely unbalanced. The U.S. trade figures in 2010 showed a $273 billion trade deficit with the PRC. The difference between what we purchase from them and what they purchase from us is used by China to purchase more and more of our U.S. Treasuries. Then, of course, China receives tens of billions of dollars per year in interest payments from the Treasuries they purchase with profits from the U.S. - China trade imbalance.
Yet, in July of 2010 and again in November 2010, China downgraded the sovereign credit rating of the United States even though the U.S. has never defaulted on its debts. Not only has the U.S. never defaulted, it has never even offered to pay at a discounted rate. The U.S. pays its debts in full, and yet China downgraded our credit rating due to assessed "potential" risk while its leaders announced to the world that the U.S. needs to be financially responsible and economically sound. The irony is that being repaid by China is not a "potential risk"; it is today's reality for thousands of Americans to whom China refuses to pay what is legally and morally owed.
China argues that because these bonds were issued by a former administration or regime, the Republic of China, today's China should not have to honor them. Does this mean that every time the United States changes presidents that we no longer have to honor the interest and principal payments to all who purchased U.S. Treasuries during the previous Administration? Can an incoming president simply refuse to honor any contracts or treaties approved by his/her predecessor? Clearly China’s position is in direct violation of the Successor Government Doctrine of International Law. Further, China seems, at best, inconsistent and hypocritical. Recently following the fall of Saddam Hussein, China demanded the new Iraqi regime honor Saddam's old debts.
The simple truth of this issue is that the bondholders invested in the Chinese bonds in good faith, entering into a contract whereby China would honor the agreement to pay interest and principle back to the investors. China has now refused while continuing to enjoy the fruits of the infrastructure which was created by the fundraising. The bondholders are entitled to payment in full. However, even if China paid only 1/3 of the amount currently owed to Americans, such a settlement would enable the American Bondholders Foundation, LLC (ABF), (which represents thousands of American holders of these defaulted Chinese government bonds in 43 states) to settle all bondholder claims and provide a proposed stimulus of $2 billion to every state in the Union. In addition to this, capital gains and income taxes paid by the bondholders would provide additional significant tax revenues to the federal and state governments. Simply put in round numbers: China owes approximately $750 billion to U.S. citizens. If they only paid one third of their actual debt through a debt offset structure, negotiation or settlement, that would create an infusion into the U.S. economy of approximately $250 billion from an external (not the U.S. government) source.
But even more than that, twenty-five percent of the total settlement amount will go directly to ABF Charities, a 501(c)3 organization devoted to humanitarian projects across all of the United States! This will mean additional funding to over 1900 Hospice Foundations, Rape Crisis Centers, programs for the mentally and physically disabled, youth programs, education programs, college scholarships, funding for equipment for volunteer fire departments to bring them up to safety standards, and much, much more.
The ABF has received bipartisan letters from members of Congress in both the House and the Senate supporting a debt offset structure as a means to resolve this issue. They encouraged the governments of other countries to purchase these same bonds from the ABF at a discount and use the bonds at full value to extinguish debt those countries owed to China. In 2005, The World Bank held a special meeting for the ABF to present this debt offset opportunity to Ministers of Finance and Treasury from several countries, and encouraged them to utilize this avenue of debt reduction. Many of those leaders questioned why the United States Government wasn't interested in using this opportunity themselves as a means to reduce the debts of the United States, considering that the USG was heavily indebted to China. Clearly, at the time, the U.S. was reluctant to use such a tool. However, this opportunity is still available today. Rather than be subjected to continued pressure to increase our debt limits for the purpose of servicing interest payments on Chinese held U.S. Treasuries, these Chinese government bonds should be used to buy down our debt, settle with the American bondholders and complete a global settlement of this issue, finally holding China financially responsible and accountable for their financial obligations, just as they hold the United States and others. China should play by the same rules and regulations by which they expect others to play.
If the USG would utilize debt offsets to begin buying down the debt the U.S. owes China and extinguishing the debt China owes these American citizens, China's feet would finally be held to the fire, compelling them to pay this debt, just as China expects and requires the USG to honor its debt obligations. Only then will China be in a position to stand tall among nations as a responsible member and leader, by example, of the international community.
http://americanbondholdersfoundation.com/free_money.htm
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