If a Default, Who Gets Paid First?


When the tax payer bailed out Freddie Mac and Fannie Mae in 2008, foreign central banks never lost a dime. At that time China had $376 billion in bond holdings. China was paid in full.

According to Bloomberg, China is the largest foreign owner of Treasuries: $1.28 trillion. Japan is second with $1.14 trillion.

The U.S. has run a sizable trade deficit with China; a much smaller one with Japan. Altogether, the U.S. Trade Deficit has been mind boggling. China used its trade surplus money to buy Treasuries from the U.S. In short, every month we owe our trading partners a great deal of cash.

Via multinationals like Apple, IBM, Nike (you name the company), we outsourced our production to third world countries. We then bought those goods, making a handsome profit for the companies and China. China took its share and bought bonds and T-Bills.

Yes, China will get paid first. Japan will get paid second. Other foreign banks will be paid. Social Security will be paid after bond payments. The rest of us will have to stand in line. And hope.

trade percentage gdp 1960-2012