Lindsey Graham: America Should Intentionally Default On Trillions In Debt To Punish China For Pandemic

Lindsey Graham has an idea. And it isn’t a good one.

During an appearance on the Thursday evening edition of Fox News’s Hannity (where sanity goes to die), Graham delivered a lengthy critique of Beijing’s role in the COVID-19 pandemic.

As is often the case with Fox’s programming, the English language fails as a sufficient tool when it comes to conveying the level of absurdity on display during Graham’s choreographed discussion with Sean, one of countless “interviews” the two men have conducted over the course of the senator’s metamorphosis from sharp Trump critic to sycophant.

To be clear, this deserves precisely as much attention as media outlets other than Fox have afforded it, which is zero. But, because Graham decided to weigh in on US debt, I’ll begrudgingly lampoon it.

During the exchange, Graham touches on everything from Wuhan wet markets to lab conspiracies to selectively canceling a portion of “the debt we owe to China”, as he put it. Although that latter bit garnered the most jokes on social media, his other remarks were equally inflammatory, if not quite as overtly foolish.

“Yeah, so the first thing I want to do is get the United States Senate on the record where we don’t blame Trump, we blame China”, Graham began, with videos of China’s open-air markets playing alongside him, for maximum effect. “The Chinese government is responsible for 16,000 American deaths and 17 million Americans being unemployed”.

Already, the conversation was off the rails. It is absurd to claim that no Americans (not a single one) would have died from COVID-19 if Beijing had only taken the proper steps to contain the virus and notify the world of the imminent danger to the international community. The only way that could possibly be a true statement is if COVID-19 were an engineered bio-weapon, and although Hannity and Graham (and the Daily Mail) are apparently fine with suggesting as much, it’s a wildly irresponsible claim to make (even tacitly) without concrete proof.

Additionally, the Chinese government is not responsible for US jobless claims. Again, mitigation efforts to contain the spread of the virus would almost surely have led to job losses irrespective of what China did in the early stages of its own outbreak. There is almost no chance the US would have had zero cases and therefore not found it worth implementing some lockdowns at the cost of some jobs had China only taken the “right” steps in late December.

Graham continued. “I wanna get the medical supply chain back into the United States and I want to stop [sic] canceling some debt that we owe to China, because China should be paying us, not us paying China”.


So, Graham said “stop”, but he meant “start” – Lindsey said he wants to “start canceling some debt that we owe to China”.

That suggestion is manifestly ridiculous for reasons that run the gamut from “conceptually silly” to “incredibly dangerous”.

Starting with the obvious, Treasurys are just securities. China can sell them. There’s a sense in which what Graham is suggesting would be akin to, for example, Walmart finding out that a sick customer who infected multiple employees while shopping is also a stockholder and then threatening to “cancel” that person’s equity stake in the company. Clearly, our hypothetical infectious shopper could just login to a brokerage account and sell his or her shares.

In that respect, Graham’s hypothetical selective debt cancelation is just nonsense. And I don’t even mean that in a pejorative way. Rather, I mean it literally. It’s nonsensical.

That said, these are USD obligations. At the end of the day, America can do whatever it wants when it comes to cutting off other countries from accessing the US financial system and US dollars more broadly. At least in theory, the Fed could try to seize custody holdings of US Treasurys or, for example, make it illegal to transact in US bills, notes and bonds with China or anyone acting on the country’s behalf.

Of course, that would amount to grand larceny on an unimaginable scale – a strange kind of international piracy, where the pirate effectively declares trillions of his own obligations contraband as part of a scheme to avoid repayment.

Taking this thought experiment a bit further, any such effort would be a logistical nightmare bordering on the impossible. As one veteran trader I spoke with on Sunday morning put it, “that’s f***ing crazy [and] would basically be an act of war”.

Last week, while discussing one of Howard Marks’s recent memos, I wrote the following about de-dollarization:

The dollar’s status as the world’s premier reserve currency is threatened more by US foreign policy than it is by any deficit, no matter how large.

For instance, the constant weaponization of the USD and the US financial system through draconian sanctions aimed at punishing perceived “foes” (sometimes for not very good reasons) along with the 2018 experience (when the rest of the world was again reminded that financial stability outside the US depends almost entirely on the Fed not erring by overtightening during a hiking cycle), are likely to be the key drivers of continued de-dollarization. Not deficits and not “money printing”.

Consider Graham’s selective debt cancelation idea “Exhibit A” of that dynamic.

It’s one thing for the US to leverage access to dollars in the service of, for instance, curtailing Iran’s nuclear ambitions or ousting Nicolás Maduro. You can, of course, debate the relative merits of those efforts, but neither is likely to lead to rapid de-dollarization by other nations.

Graham’s “suggestion” (to the extent it’s even possible), on the other hand, would likely set in motion a sweeping push towards reserve diversification with unimaginable knock-on effects in a world where US government obligations serve as the risk-free collateral that greases the wheels of international trade, commerce and finance.

Indeed, it’s worth noting that, during the initial stages of Trump’s efforts to squeeze Iran, Europe established a special purpose vehicle aimed at helping Tehran circumvent some Treasury sanctions in the interest of preserving stability in the country and averting a societal collapse that could destabilize the region. That SPV was, in essence, a de-dollarization push – and it was spearheaded by the UK, Germany and France (along with China and Russia).

From a 30,000-foot view, a decision by the US to deliberately default for the purposes of waging a financial war would create havoc across markets. It would be, for lack of a better word, chaos.

And that goes for all assets. Equities would crash, FX would be utterly haywire as nobody would be able to discern the ramifications for the dollar and there’s absolutely no telling how things would pan out in bond markets, which would be torn between a haven bid for Treasurys and the uncomfortable reality that the proximate cause of that very same bid is an intentional US default orchestrated by lawmakers who, at that point, would be widely seen as having totally lost their minds.

This would not be akin to the “technical” default often bandied about during standoffs over the debt ceiling. Graham’s idea is a one-way ticket to a complete market meltdown.

“They are all the same class and credit, it would be a general default and would cause a global recession far, far worse than the GFC”, one rates strategist said Sunday. “It would be a financial armageddon”.

While it’s true that, as Stephanie Kelton put it on Saturday, “the US doesn’t need to borrow from China or anyone else [and] never has to pay ‘market rates’ on any bonds it chooses to offer”, these obligations are already in the market.

Finally, it’s possible Graham’s suggestion runs afoul of the Constitution, but this is one case where that’s actually a minor point.

Ultimately, Graham’s comments to Hannity are the quintessential example of the famous quote often attributed to Abraham Lincoln: “Better to remain silent and be thought a fool than to speak and to remove all doubt”.


If you’re wondering where Graham got this idea, it’s likely he and Hannity were looking to magnify remarks made during a Monday Fox segment that found Tucker Carlson interviewing Gordon Chang, a senior fellow at the Gatestone Institute, which habitually produces inflammatory anti-Muslim content, often republished on right-wing blogs.

I’ll leave you with the transcript of that exchange.

TUCKER CARLSON (HOST): So you mentioned that they hold over a trillion dollars in Treasurys, in our debt. Why wouldn’t we just unilaterally forgive our own debt?

GORDON CHANG (SENIOR FELLOW, GATESTONE INSTITUTE): Well, if we were to do that, and we could easily do it, China would do a couple things. First of all, it would say that it was a repudiation of debt, and then they would bash us. They would say that we’re not a responsible member of the global financial system. They would then try to dethrone the dollar. Now, I understand what you’re thinking. But the point is that we can sort of avoid those types of charges if we work with the issuers of the other major currencies, and then China is left with no arguments in that regard.


CHANG: It sounds hard to do that, but nonetheless, when we see what’s happening in England right now, especially to the prime minister, I think that the anger there is enough so that we could actually build that coalition to actually get the other issuers to work with us.

CARLSON: Boy, I think that sounds absolutely worth doing.

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30 thoughts on “Lindsey Graham: America Should Intentionally Default On Trillions In Debt To Punish China For Pandemic

  1. Time to have done that with any meaningful impact has long past. The FED has monetized everything and we’d only be hurting ourselves.

  2. Great hypothetical about Treasuries if this happened. I think it’s a rush to cash, gold, and even crypto as opposed to the typical haven bid of Treasuries themselves.

  3. So Carlson thinks we could build a coalition to punish. If the trade negotiations were done as a coalition of nations instead of US going alone that may have had a grain of viability. This administration has proved to be an unreliable partner. It would be a disaster to future generations and certainly a punishment to ourselves presently.
    God,when I was a kid we were taugh to hide under desks to avoid nuclear destruction. Now it is talking heads that could easily start the biggest famine the world could expieience. The pandemic would be kiddie shit. All to win a few votes.

  4. Would Lindsay Graham’s plan include China devising the equivalent of Brady Bonds for the USA? Does his plan limit defaults to Chinese-held UST’s only? How would that work? Keep us laughing, please…

  5. Bad stuff happened under our watch now let us manipulate whatever we can in order manage the scrutiny of us. Merit does not matter, we are republicans: by gawd.

  6. I hate to say this, but the outrageousness of Graham’s comments suggests that someone in this Administration (maybe Trump himself) is seriously thinking of declaring war on China sometime between now and election day. Simple. Call off the election, declare martial law and bury the Constitution. Voila, Emperor Trump for a life.

  7. “Graham’s idea is a one-way ticket to a complete market meltdown.”
    The senators would have liquidated their equity stakes prior to this meltdown as some did in last one.

  8. Cheeto never met a debt obligation he didn’t want to default on. He told us he would run the country like he ran his companies.

  9. It would be better to just print some 1 trillion dollar coins and ship them over saying debt paid in full but ultimately this is just pointless posturing about GOP being fiscally responsible. “I know how we pay for it!” Then blame Democrats for not letting them.

  10. Well when the weekends get too long we as a group on this website tend to drift off into the realm of absurdity….Thus we get mention of Lindsey and the gang at Fox…..Market opens tomorrow !!!

  11. Over the past few years I’ve seen way, way too many (right wing) fringe ideas make their way into the mainstream, to include Donald Trump descending the escalator at Trump Tower and announcing his presidential bid. Who ever thought that was going to happen (except Michael Moore)?

    I hate to say it, but I tend to agree with Antony A Phipps: this is probably the first stab at socializing the concept…seeing where it goes…seeing what kind of feedback occurs. This is how the Overton Window gets shifted.

  12. It’s just one terrible idea after another. From Trump’s reopening the economy early and letting the virus explode again to the traitorous Republican leadership that left Trump in power now threatening to default on the loans owed to China which have helped to keep America afloat. Trump and his band of idiots are the enemy and you have to wonder who Trump is listening to for direction. Whoever it is, is not our friend. They are working hard to destroy America. It’s Easter while you’re at church pray for this country’s survival.

    1. We keep allowing ourselves to be governed by amateurs just because they say they hate the LGBT and are anti-abortion and we have only ourselves to blame. This happy accident of a republic we call the USA has been intent on destroying itself almost since it was founded. It seems inevitable that our leaders are now ready to finish the job. The next step will be to disenfranchise “enemy” voters and name Papa Don “Emperor for Life.” What a country.

  13. We are entering the dangerous phase Trump presidency, failure phase. Increasingly we should expect to see lashing out at all enemies real or imagined in order to keep from losing power. That these lashings only serve to drive away support is not part of the calculus as times become more desperate. Thank you for illustrating this to this very small audience. Hopefully a larger publication such as WSJ can devote resources to helping stop this self-destructive phase of the ruling party and with it our country.

  14. I mean, it IS doable right? Today’s fringe Republican idea becomes tomorrow’s mainstream Republican platform somehow becomes Tuesday’s policy. Every Treasury comes with a digital token, a CUSIP. The Treasury and the Fed can void them, and instruct Wall Street that they are irredeemable. The Administration can argue that it doesn’t violate the 14th Amendment (which Republicans are not keen on anyway) because it isn’t a backdoor default but a sanction instead. Just like with MMT, the government can dare the world to switch away from the largest global reserve currency, the largest risk-free asset, and undermine the underpinning of the “deepest, most liquid market” knowing that inertia and U.S. power will prevent that. The United States will face either a currency crisis or a debt crisis eventually anyway, so if it can use weakness to project strength and make a significant foreign power and rival take the hit to kick that can down the road, I can see us doing that. This idea will gain traction in the future.

  15. A ridiculous idea embraced by idiots, and will never happen. Not sure what the point of the write up was, other than making angry partisans into angrier partisans.

  16. Its strange that this idea as you so up in arms. You’re worried about the health of the bond market? Does the American banking establishment’s credit rating worry you? China and Russia have been dumping treasuries for at least a decade. De-dollarization is official policy all over the Mideast, Central Asia and Eurasia in general. Its the SCO and BRICS’ watchword. Of course Graham and the neocons are full of it, and they’re trying to shift blame for the Depression onto both a virus and another rival country, but the notion that cancelling debt is getting you this angry strikes me as very odd. It would be a test of the dollar’s strength. The test will fail, and America’s influence abroad will wane. Is this a problem? You sound like a libertarian speaking of the sacred trust of elite debt, debt which, by the way, we have to pay. I wonder if you have financial ties your readers might want to know about.

  17. The Japanese professor of physiology or medicine, Professor Dr Tasuku Honjo, caused a sensation today in the media by saying that the corona virus is not natural. if it is natural, it will not have affected the whole world like that. Because, depending on the nature, the temperature is different in different countries. if it were natural, it would only have affected countries with the same temperature as China. instead, it spreads to a country like Switzerland, the same way it spreads to desert areas. whereas if it were natural, it would have spread in cold places, but would have died in hot places. I have done 40 years of research on animals and viruses. It is not natural. It is manufactured and the virus is completely artificial. I have been working for 4 years in the Wuhan laboratory in China. I know all the staff of this laboratory well. I called them all after the Corona accident. but, all of their phones have been dead for 3 months. It is now understood that all of these laboratory technicians are dead.

    Based on all of my knowledge and research to date, I can say this with 100% confidence that Corona is not natural. It did not come from bats. China made it. if what I say today turns out to be false now or even after I die, the government can withdraw my Nobel Prize. but China is lying and this truth will one day be revealed to all.

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