There's been some discussion over the last few days of what is going to happen if China starts reducing its position in US Treasuries. Seeking Alpha has a good summation of the problem:
In response, during a recent summit, the leaders of Brazil, Russia, India, China and South Africa (the BRICS) announced that they want to trade between themselves in their own currencies. This comes amid a growing chorus in China pushing for a limit of dollar reserves to $1.3 trillion. At present, China, whose economy the IMF says will outpace that of the US by 2016, has $3.04 trillion in dollar reserves. What's going to happen to the dollar when China sells off $1.74 trillion? And who, besides the Federal Reserve, is going to buy our bonds?If anything, I think this understates the problem. The real issue starts, not when China starts selling our bonds, but when China stops buying our bonds. As soon as that happens, we're in big trouble.