The best analysis of our precarious national debt situation is at today.    China is in between a rock and a hard place.  Don’t underestimate their ability to turn aggressive if they see that as their only option.  They can’t dump Treasuries because that would lower the value of the remainder of their sizable holding.  On the other hand they don’t want to keep buying everything we offer as that ties them too closely to our economic future.

Jeff rightly points out that China is trading our treasury notes to buy things of real value (mineral assets, etc.).  Should China not be able to buy items of value, they will be less likely to purchase Treasury notes.  If Uncle Sam can’t sell T-bills to China, where will the money come from to continue our wild government spending spree?