John Kerry Doesn’t Seem to Understand the Downside for China if the U.S. Defaults

July 29, 2011

With the U.S. poised to either suffer a downgrade to its bond rating or actually default on its obligations, Senator John Kerry, the head of the Senate Foreign Relations Committee had this to say:

The Chinese are laughing all the way to the bank,” said the former Democratic presidential nominee, because a downgrading of US Treasury securities will mean enormous and completely unnecessary increases in our interest payments to the nation’s largest creditor — and our most important competitor in the international arena.

WTF? The Chinese are freaking out over the situation at the moment, as well they should. They have a huge position in U.S. bonds, which would become worth a lot less with a downgrade. And why the hell would they as creditor ever be happy with a default? What’s Kerry smoking?