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Methinks you're fantasizing. China needs the US and the EU as much as the US and the EU needs China for cheap wares. If the the US and the EU go down and crash, China will crash even more. They've no interior market/consumption to speak of, and need to rebalance.

Well, maybe.

Trouble is, they're building ghost cities, they build railroads with subpar concrete (hint, since it's not explicit in the NYT article: to make proper high speed rail concete you basically need a derivative of volcanic ash, and the amount thereof produced per year is lower than the amount needed to fit the needs of China's yearly consumption, which dwarves the consumption by that of all other countries; in other words, their railway infrastructure's lifespan is roughly 10-20 years, vs 50-100 in developed countries), they need to rebalance, and so many other things can go wrong...

China will slow down or have crashed by then.

This is a problem with the US economy in general - it is based on growth.

Can you name an economy that is based on anything but growth?

Those European/Asian countries that have been around for thousands of years are more stable, and have economies based more on sustainable goods and services.

Which ones? Germany and China? Seriously? Sorry, but no. Both are driven by exports and excess savings, and they recycle profits by lending the latter to their customers. If their customers default (and they probably will) and set up stiffer trade barriers (which they likely will too), they'll tank... Hard... Much harder than economies that traded goods and services for funny money. Oh, and they both have major demographic problems due to low birth rates. And China additionally has a major rebalancing problem on its hands.

One of the main economic numbers that drives the US stock market is "new housing starts" - a number based solely on having the population continually increasing.

I suspect that Bernanke has a lot more to do with it than you suggest. He's continuing to inject liquidity into the banking system. Since the money isn't getting lent out to businesses and consumers, it needs to go somewhere, and that somewhere happens to be asset markets.

Once that slows down - and can't even be propped up by the banks fudging mortgages - the entire country is headed for a depression.

The entire country is likely headed for a depression no matter what.

The same economist that predicts that China will be a larger economy than the US by 2018? Here's the take from a finance professor in China:

http://www.mpettis.com/2012/05/03/revisiting-predictions/

Also, fwiw, the US military expenditure is such that, if the EU were to spend twice that amount each year, it would take them 20-25 years to catch up in might. So call me skeptical about China, of all backward places, catching up with the US any time soon. The only actual power-balance comes from nukes, and even those are bordering on obsolescence with the advent of missile defense.

> Also IF China off its bonds, do you for a second
> believe that other countries would KEEP theirs?

They would probably _increase_ their bond purchases.

Other countries buy US bonds to to the extent that they have a trade surplus with the US. They're not buying them because they want to fund us; they're buying them because that's how they can prevent their currencies from appreciating too much against the dollar and the trade balance equalizing. If the yuan appreciates, we buy less from China, more from other countries, they have a bigger trade suprlus with us, and end up having to buy more bonds.

I suggest reading http://mpettis.com/2011/04/chinese-recycling-and-us-interest-rates/ for an analysis of the situation that tries to actually consider what happens the day _after_ China stops buying US bonds, if that were to happen.

I'm not sure where you're getting your economic theory but it's pretty uninformed.

~75% of US debt is domestically owned. China doesn't even hold 10%. more like 7%. They are not "keeping the US economy afloat".

The US would not plunge into a depression if China dumped their dollar holdings. If China dumped their dollar holdings and the value of the US dollar went to the crapper, suddenly the US would become the new country to build everything in. Any exporters that set up shop would instantly garner a profit.

But that's never going to happen; China would be hurt much more than we would be if we were no longer able to buy their products. Their "middle class" you speak of is anything but thanks to the 20-30% savings rates because of the lack of health insurance options and because the government recapitalizes banks by the interest rate spread between savings accounts (for the populace) and the rate banks are allowed to make loans at. Not to mention their foolish over-commitment to developing a manufacturing base and pushing further in that direction even now while US consumption shrinks.
In other words, none of this imbalance matters. We're all headed down the crapper together, it's like mutually assured economic destruction. I used to be worried about all this until I learned that nobody's going to do anything; not when there's money to be made playing the status-quo, it's must safer and easier that way.

No, you've got it all wrong, my friend. I recommend finding better sources to educate yourself with-- Michael Pettis is a professor currently teaching economics classes at [one of the top 3 or so universities in China, don't remember which, sorry]; he's probably the best economist, most closely connected with the state of affairs in China, that I know of. If you're interested in this stuff I highly recommend his blog.