Could this be why selling out to China was a bad idea?

Why in the world would we let the largest, arguably most repressive, communist country hold so much power over us?
Because a few people here make a lot of money from it.
From the Telegraph.

China threatens 'nuclear option' of dollar sales
By Ambrose Evans-Pritchard
Last Updated: 9:54am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.
[...]
Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
[...]
He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.
[...]
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.
[...]
Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.

This has been the 800lb. gorilla for a long time.
Now, that gorilla may stomp on our already shaky economy. It's nice that the NeoCon man on the job, Paulson, is fighting so hard for us.
What is totally under-reported is the fact that the debt China holds is tied in very closely with mortgage debt in this country.
I will give a very basic summary of why this is true. Mortgage brokers hold your new loan for all of 5 minutes before they sell it "up the line" to various institutions. Eventually, that debt winds up in various investment fund markets. Any investor, anywhere, can invest in those funds to underwrite that debt, with the hope of making a nice return. China holds large investments in those same funds. As our mortgage market collapses, investors like China would be smart to jump out of those funds. So even if they continue their holdings in the bond market, their "nuclear option", China could still trigger a US recession by jumping out of other investment funds. Fun, isn't it.
Great national security policy.
And I still can't buy a good cigar from Cuba.

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