While China may be posturing after suffering $5 billion in losses on its $10.5 billion investments in Blackstone, Morgan Stanley and TPG, this is a very serious threat. Granted, China does not have many options of where to invest its surplus cash [..]


A decline in reserves “isn’t likely because of China’s huge twin surpluses,” Yu
said. China “should diversify its reserves away from U.S. Treasuries if the
value of China’s foreign- exchange reserves is in danger of being inflated away
by the U.S. government’s pump-priming,” he said.

Although this is most likely a preamble to a diplomatic escalation arising from Geithner's initial claims about currency manipulation by China, the threat that the U.S. may lose it largest foreign debt purchaser should be enough to make people in the administration very worried. China is currently in a position of strength relative to the U.S., and only an altruistic desire . . .