Sebastian Mallaby in today’s Washington Post:

China has accumulated at least $1.5 trillion in dollar assets, according to my Council on Foreign Relations colleague Brad Setser, so a (highly plausible) 30 percent move in the yuan-dollar rate would cost the country around $450 billion — about a tenth of its economy. And, to make the dilemma even more painful, China’s determination to control the appreciation of its currency forces it to buy billions more in dollar assets every month. Like an addict at a slot machine, China is adding to its hopeless bet, ensuring that its eventual losses will be even heavier.

Heritage fellow Derek Scissors March 14:

The only market open to the P.R.C. and big enough to absorb its dollars is our bond market. That’s why China has at least $1.1 trillion, and maybe as much as $1.7 trillion, already invested in American bonds. That’s why China moved $200 billion into U.S. Treasury bonds last year, even though the interest rate was dropping like a stone. Beijing knows it has no real choice, even if it’s very useful to pretend it is America which has no choice.

But as hollow as China’s new international currency threats are, the threat from the Obama administration’s deficits is real. Scissors explains:

China is about to get much less important as a buyer of our bonds. The amount they buy is tied tight to their trade surplus with us, which isn’t going to soar this year and may drop. Meanwhile, the amount we are going to borrow (from everyone) is going to soar, so President Obama and Congress can have their $1.75 trillion deficit. While we’re patting ourselves on the back that Chinese bond purchases don’t mean much, we should remember that selling all these bonds to anyone is a sign the U.S. is in trouble.