Lucid thoughts CT. Will re-read all this over the weekend. A revised plan is forming. I am not arguing about the precarious nature of China or her internal mechanations. I can agree on most of your points of character, but it is the eventuality that needs some polishing.
So I'm going to throw something at you regarding the machinations of the $USD reserve, and the simple reality of not having to use it. It can be easily proved that a 1% rise across the whole UST yield curve will cause US debt interest to rise above 24% (currently 17%) of the Federal revenues - an obvious trigger for a US downgrade.
Surplus countries such as China, OPEC, Africa, Australia (so far) and others do not need to trade $USD as a medium. The recent threats over Iran I say are a continuation of the theme of M/East countries wishing to exchange via non$USD denominated exchange for oil, gold, food etc. We are seeing the US military complex enact economic protections under the (wrongful and hypocritical) guise of democratic good.
So underming government stability is central to reducing the costs and media branding of military intervention in undermining economic stability. This is centuries old and universal, but is now more covert than it is obvious.
Putting that aside, and getting back to economic realities. If debt escalates faster in the GBP, US and JAPAN this will trigger a tsunami of the same kind you a referring to because these coutnries rely on each other inextricably.
China's external exposure to external debt markets is still extremely small by consideration of future growth and capacity. A major and central dependency to further advancement in my opinion. Geithner has backflipped on name-calling China manipulators to gain increased access to the Chinese financial markets.
This is more about the global debt markets, and the US protecting the market share for $USD traded debt. It is already in the tea leaves that the audience is reducing for trading US debt, that clock is ticking.
China may well beat them to the bottom - but they won;t stay there - my money would be on someone else first. If there anyone experienced and equipped to sabotage financial markets, it is not the Chinese. Yes they have overcapacity, but the signs are still strong and their internal demand will be for many years to get to a level close to OECD per capita. (Maybe someone moves into all those ghost cities)
There are a few tempting targets on paper for those interested in torpedoing the competition as a means of getting/staying ahead. Your assessment of the possibility of a China collapse is spot on.
I don't rule out a 21st century mix of industrial/financial sabotage that poors from the glands of the Global Financial Con. There are numerous subplots to obfuscate a clearer truth.
It remains to monitor the delicate balance of global debt and who's will reach critical mass first while which bank gains from anothers demise. I see China as being far more elastic in available options, and more importantly - better (but not totally) sheltered from external influences.
