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Okay, wrong analogy. Let me put it another way -- if they don't show up to the party and buy our bonds, then we have to increase interest rates. In order to finance those increased interest rates, the rates to bank have to increase. When interest rates start edging above seven percent for a mortgage, the you may see a collapse in housing prices.

And yes, I know the old saying, owe the bank $10,000 and they own you. Owe them $10 million and you own them.

China, however, is a special case. The leaders really don't have to answer to anyone.

So they give away our manufacturing through "free trade" and now they have to get it back. Does this sound like "free trade" or a command economy to you?
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That satisfies America's desire to consume and Asia's desire to step up production and employment for its vast population. But America's indebtedness to the rest of the world is rising at an annual rate approaching $700 billion. Everyone agrees that this rising indebtedness cannot continue to at such a pace. The pessimists say this imbalance will almost certainly lead to a sharp, painful correction; the optimists, a camp that includes much of Wall Street and all of the economists in the Bush administration, argue that the present arrangement is quite sustainable.

"The Asians have no choice but to hold onto our dollars," Glassman said. "If they dumped them, they would be jeopardizing their own development."

The challenge will come once the price of imports begins to rise. At that point, Americans will have to produce for themselves much more of what they consume, or pay a lot more for the privilege. Ideally, the process would involve America becoming a much bigger producing nation, even stepping up its exports to Asia, while Asia, and especially China, takes up the role of consumer.

That is essentially the view of the Bush administration as outlined by Ben Bernanke, the newly appointed chairman of President George W. Bush's Council of Economic Advisers. "We probably have little choice except to be patient as we work to create" the necessary conditions for a reversal of roles, he said in a recent speech.

That is not an easy transformation. Americans now produce only about 75 percent of the merchandise they purchase, importing the rest. That is down from 90 percent or so a decade ago, according to various studies. The percentage was even higher in the late 1980s, the last time the dollar went through a long, similarly managed decline - in those pre-euro days against the German, French and Japanese currencies.

As the dollar fell, manufacturing did revive in the United States. Exports jumped and the trade deficit shrank, but the interest rate manipulation involved in managing the currency helped to produce the stock market crash in October 1987, or so some economists argue. This time the housing bubble could burst if the flow of dollars lent from Asia were to slow too abruptly.

The result would be a shortage of money to lend and a rise in mortgage interest rates, which are tied to the yields on the Treasuries that the Japanese and Chinese often buy in the lending process.

That would not be a happy ending, but Henry Kaufman, the economist and money manager - reflecting the optimism on Wall Street that revaluation and gradual adjustment will work - argues that China and Japan benefit in other lucrative ways from lending to the United States.

http://www.iht.com/articles/2005/07/22/business/dollar.php