>Couldn't they be malicious with that? I should know more
>about T-bills, but I never study like I should. Can't T-note,
>bills, and (i forget the other denomination) be cashed in
>early with a penalty?

To be general, our debt is T-bills.

The government needs some way to finance the debt, so they offer up an offering of treasury notes at some interest rate which can be bought by anyone. This is of course built on the idea that we can put the money we raise into capital ivestments and paying down the debt and with that the revenue of the government will grow at a greater rate than the interest rate we give to the buyers of the bills.

And, yeah T-Bills can be called in esp. by nations as necessary with a percentage penalty.

Basically what has happened is our economy is artificially propped up by the Chinese. They own a couple billion in t-bills, and because of that our interest rates have been depressed, which has allowed for this recent housing boom (which is basically what the economy has been built on since the tech bubble-- again this is all built on pretty gross generalizations, but you get the idea). Now the worst case scenario is that the chinese have a banking run which forces them to admit RIGHT NOW that they have several hundred billion in unserviceable debt, they will call in their t-bills and in reaction the American government will liquidate piles of investments, and raise intrest rates astronomically overnight. This will make your loan on a house unbelieveable, the housing market will drop out and the main fixture of peoples investments will very quickly become worthless.

Now what this is all held up by is the mutual knowledge that they need us, more than we need them. If that worst case scenario comes through, America will face a depression that dwarfs the one in the 30's, and because of that the world will face a depression that dwarfs the one in the 30's. But we still have enough power to make it through the depression (I don't think we could return to our current level of power, but I think we would return to a global prominence equal to the EU or England). But, if we were to get in trouble, and say create an artificial building boom that sucks up piles of raw materials we could price China out of competition and basically ruin them. They wouldn't have the infrastructure and power to make it through, and as long as we looked strong we would be alright (no matter what our national balance sheet says, because if we were to go by that America would already be in the middle of a destructive depression)

S.ean | Geezers need excitement. If their lives don't provide it they incite violence. Common sense. Simple common sense.