Something positive insights from "Winks"
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At $14 trillion and counting, the danger of the mounting U.S. debt is very real.  However, we've been misled (or maybe lied to?) over the size of China's holdings.  The truth is China holds about 7.5% (U.S. Treasury September 2010 financial report), or just over a $1 trillion.  Alot of money, yes, but not enough to hold sway over our economic future.  The bigger problem is the lopsided trade deficit we have with the Chinese.  Because they have artificially deflated their currency, they have been able to flood the U.S. (and the world) with goods that are cheaper than those produced domestically while simultaneously making our exports to them more expensive. 

So, how have we responded?  By loudly protesting (whining?) that they should inflate their currency to "re-balance" the trade gap.  And they should do this...why?  Well, it would help tamp the inflation that de-valuation has created, but with so much cash rolling in from around the globe and living standards rising so fast, it's hard to imagine that inflation is much of a concern, especially for a government that's never cared much about the well-being of its citizens in the first place.  On the contrary, inflating the currency would brake the growth that has propelled China to the second largest economy in the world and enabled a military expansion that should be cause for concern for the free world.  Who can blame them for telling Timmy Geitner to go pound sand? 

But how have the Chinese responded, other than blowing off Washington (something they've made into an art)?   By making suggestions that the U.S. dollar as the dominant currency is "a product of the past" and that the yuan should supplant the dollar as the global benchmark currency, effectively bumping us from our perch as the world's leading economic power and significantly reducing our influence in the global economy.  President Hu Jintao speaks of collaboration with the U.S. in one sentence and then follows with comments that clearly indicate China's intentions of knocking the U.S. from the top of the global economic food chain.

It doesn't help that they perceive the U.S. as a weakened adversary, thanks in part to Obama's ineffective foreign policies and appeasement strategies and the damage of the recession.  Make no mistake, China may be a top trading partner, but they remain formidable opponents politically and militarily.

So, while they aren't going to "own" us anytime soon because the debt, they are going to play their hand in a way that serves their economic interests before ours and by their own rules whenever they can get away with it.  We just need to remember who we are playing with and use Obama’s lack of economic leadership and weak foreign policies as leverage to force change in the WH in 2012, as it is clear that this administration is not up to the challenge.

Alright, if the Chinese only own 7.5% of the debt, who owns the rest?  Well, American individuals and institutions actually own 42% of it, the Social Security Trust and other government retirement funds own 21%, and a large contingent of countries own the rest.  It breaks down to about $9 trillion for us and $5 trillion for everybody else.

For further reading see:

http://online.wsj.com/article/SB10001424052748703551604576085803801776090.html?mod=WSJASIA_hps_MIDDLEThirdNews

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