TABLES HAVE TURNED? China could default on $1.6 trillion debt to U.S.

What an interesting turn of events.

After it was reported that the White House is considering defaulting on some or all of its $1.1 trillion debt to China, it was reported that China owes the United States, too.

The Fox Business Network is out with a fascinating story that the U.S. possesses $1.6 trillion in century-old Chinese bonds. And the U.S. government could use it as leverage against Beijing.

Here are excerpts from the article:

The Lewisburg, Tennessee-based American Bondholder Foundation holds $1.6 trillion of century-old Chinese debt, including interest, dating to before the founding of the communist People’s Republic of China, that it wants the administration’s help in redeeming. There is an estimated $6 trillion or more of the debt outstanding worldwide.

The bonds were issued by the Republic of China — which ousted the imperial government in a coup — as far back as 1912 and backed by gold; they were defaulted on in 1938. The ROC government fled to Taiwan, where it remains the official ruling body, after Mao Zedong’s communist party took over following the 1949 end of the revolution.

Beijing maintains Taiwan is part of China, and under international law, successor governments are responsible for the debts of their predecessors.

…

There’s international precedent for such a move: Prime Minister Margaret Thatcher ordered Beijing in 1987 to make good on the bonds owned by Brits or lose access to the British capital markets. Then-Chinese President Li Xiannian’s government obliged, reaching a settlement of 23.5 million British pounds.

By paying some bondholders and not others, Beijing is technically in selective default, according to the ratings of bond-risk firms Moody’s, Standard & Poors and Fitch. Until China pays, it cannot sell debt on the international market.

One word: Wow!

This is a remarkable turn of events for a country deeply in debt to China.