Asian “T-bill” bailout?

Conventional wisdom maintains that China, Japan, and other countries that run trade surpluses with the US, which means they fund our overconsumption by buying assets like US Treauries, would never restrict the flow of credit to us because it would lower their exports and hurt their growth. The fact is: the foreign funding sources aren't just lending U.S. money to buy their goods; they are also providing the funding for interest on the loans extended for past imports. At a certain point, the interest payments become so large relative to the value of the exports that such kind of deal no longer makes sense.

The day of reckoning may be approaching. And the trigger is much simpler. The Freddie/Fannie conservatorship, the Lehman bankruptcy, the rescue of fallen AIG and the coming 700 billion rescue plan has, not surprisingly, lead to a reassessment of the US's creditworthiness

“Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse,” said Yu Yongding, advisor to China Central Bank, "We are in the same boat, we must cooperate," Yu said in an interview in Beijing on Sept. 23. ``If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.'' Yu said China is helping the U.S. ``in a very big way'' and added that it should get something in return.