Japan threatens to offload its $1 trillion US Treasury holdings if Trump trade talks don't go well

[Bernardo de La Paz]

34. It's not financial suicide, just a cost.

Japan would not sell it all in a single day. Nor all in a single month.

The bank (US Treasury by analogy) would not stop paying interest on the T-bills, which by your analogy is what the borrower does when they owe enough money to "own the bank". If the US did that, even momentarily, the US would not be able to finance debt and the US financial system would collapse. This is what has happened to Russia. Interest rates there are 18-20%.

Japan (and maybe others) would sell enough bonds to raise US interest rates substantially. The orange cry-baby has been demanding the Federal Reserve lower interest rates. But Treasury interest rates get set at auction. If there are more bonds in the open market (doesn't have to be the whole Japanese tranche), then they have to offer higher interest rates in order to attract buyers.

That would have a big effect on mortgage rates and since sales would be ongoing the effect would be long lasting.

If the Japanese sold 50% of their holdings over a period of a year, they might depress the value of them by (wild guess) 15%. That's less than the tariff rate.