China can bankrupt the United States? Why don't the Ah Tiongs go ahead and do it, if only to spite the Americans for beating them at the Olympics medal tally.
This is ridiculous nonsense. China buys large quantities of US debt to keep the value of its own currency low so that the Chinese may sell their products cheap and keep exporting. This is a really pathetic way to sustain one's export industries.
http://online.wsj.com/article/SB100014240529702045730862272506.html
What you say is true. China might have 3 Trillion in reserves and 1 Trillion of US Debt, but this is a mercantilism at work. Accepting a lower standard of living to export a surplus of labor is central to the RMB "weakness". Currently the Chinese economy is in trouble, the surplus of labor is over, the unsustainable export led economy is crashing, China approaches the middle income trap of developing economies. Only by switching to consumption led growth can China continue any meaningful growth, which we doubt. Get used to 6-7% growth rates from here on, and a property bubble in China. We see this growth as an official "hard landing" in China. Government projects pumped through the already bankrupt local governments will continue to massage GDP numbers which no one can trust.
The Americans have the world's most powerful financial weapon: The reserve currency. They are the only nation in the world that are able to print dollars and get away with it. In the race to devalue to remain competitive nations with "strong" currencies are the losers (Singapore, Switzerland, Australia) while the Americans smirk at the pain the weak dollar is causing. We suffer from the inflationary shock.