Alright, I read this circulating story: China dumps all American debt and boom, America collapses overnight. Sounds fascinating, right? But listen to the experts and you'll see it's just a fantasy. If you sell American debt and the dollar crashes, well... you're only fooling yourself.

So what is this American debt everyone talks about? Basically, it's like the United States borrowing money from the rest of the world. They don't have to pay back the principal tomorrow morning, but the interest? That has to be paid every month, without excuses. There are three types: short-term (about a year), medium-term (2-10 years), and long-term (30 years), each with its own interest rate.

Why do Americans do this? Simple: the U.S. government needs money for everything. Infrastructure, schools, healthcare, social assistance, and especially defense. Oh, defense. Did you know that in 2024, the U.S. defense budget reached $886 billion? That’s 3.2% of their GDP and nearly 47% of federal discretionary spending. Basically, half of what they spend goes there.

But here’s the point: the U.S. has a total GDP of $27.37 trillion in 2023. They seem rich, right? Wrong. The entire American economy is built on debt. By the end of 2023, the total national debt surpassed $34 trillion for the first time. If you divide it among 300 million Americans, that’s over $100,000 of debt per person. For every single citizen.

If a country doesn’t repay its debts, it’s a bad boy. Well, the United States can be called the biggest bad boy in the world. And when tax revenues can’t cover interest payments, default happens. And American debt gets into serious trouble.

And what about the interest on American debt? About $600 billion a year. Over 15% of federal tax revenues. And in 2024, $8.9 trillion of national debt matured, almost a third of all circulating debt. Interest payments reached $1.6 trillion, becoming the largest public expense in the U.S. If interest rates stay high and add nearly $4 trillion in new debt each year, soon half of American taxes will go just to pay interest.

But the real problem is this: the U.S. federal government lives beyond its means. The fiscal deficit in 2023 was nearly $1.7 trillion, up $320 billion from the previous year. Increased by 23%. The government spends way more than it earns and needs to borrow to fill the gap.

So how do they pay it back? Easy. They leverage the dollar’s position in global agreements and print more money to dilute the debt.

Now, China. Currently, the largest foreign holder of American debt is Japan with over $1.3 trillion. China comes next, with about $767.4 billion. So some say: sell all American debt and make the government collapse overnight.

I understand the enthusiasm, but hold on a second. First, why did China buy American debt in the first place? When China joined the WTO, exports skyrocketed. It became one of the world’s biggest exporters with a huge trade surplus. Those foreign currency earnings? Part of them are invested in U.S. Treasury bonds. Why? Because the dollar is the global currency, it’s stable, and American bonds preserve and increase their value.

But there’s more. China’s massive holdings of U.S. Treasury securities are tied to their central bank’s monetary policy. The People’s Bank of China manages the RMB exchange rate by buying American bonds, maintaining a stable exchange rate. This helps Chinese exports stay competitive and supports economic development.

So, can China sell all its American debt at once? What impact would that have? Here’s the answer: no, not much. A complete sell-off in a short time would not only hit the global financial markets but also cause panic. And China? It would suffer huge losses, especially on its foreign reserves and RMB stability. It’s what we call a lose-lose situation.

And anyway, even if China sold everything, the U.S. would attract other buyers. Japan, the UK, other countries would increase their holdings. The Treasury and the Federal Reserve have other tools: slow down new issuances to reduce supply. Nothing extraordinary.

But the most important point? China’s $767.4 billion in American debt is a drop in the ocean compared to the total $34 trillion. It’s not a challenge. It’s like using $767 billion to challenge a $34 trillion giant. It doesn’t work.

And then there’s the U.S. money-printing machine. It can print more than once and produce $1.5 trillion in two months. Shorting America? That’s nonsense. They have currency initiatives, so they print as much as they want. The dollars in your pocket have negligible impact on the dollar capital markets.

But it’s true that China is reducing its holdings of American debt. Once they peaked at $1.3 trillion, but by March 2024, it dropped to $767.4 billion. If it continues, China will soon fall to third place behind the UK.

And do you know what they’re doing instead? China is accumulating gold. An asset with no counterparty risk. The People’s Bank of China has added gold for 16 months in a row, with reserves exceeding 300 tons.

Meanwhile, Japan and the UK are increasing their holdings of American debt. In February, Japan added $16.4 billion in Treasury securities, their fifth consecutive increase. The UK added $9.6 billion, bringing their holdings to $700.8 billion, making it the third-largest foreign creditor. Even Belgium recorded the biggest increase in February, with an extra $27 billion, totaling $320 billion.

It’s obvious that the United States wants to keep expanding its American debt.

In conclusion? China holds a large amount of American debt, but a sell-off wouldn’t be a fatal blow to the U.S. economy. It could backfire. The U.S. has its tricks to manage the situation. And China is changing strategy, reducing American debt and increasing gold reserves. After all, it’s always better to plan ahead.