I’m with you. When China slowed down the acquisition of US Treasuries, the Fed had to become the buyer of last resort (enter QE1, QE2, QE lite, QE to infinity). Bernanke can not monetize enough debt to make up for China’s divestment. The question is: Will China be willing to take a hit to unload them quickly? If they are willing to urgently dump several hundred billion $’s at 85% to 90% maturity value, we will be in for a hell of a ride down the rabbit hole.
I suspect that China can unload a lot fairly quickly by simply not rolling them over as they come due. I don’t know this for a fact, but it seems logical that they are holding short term stuff.