^ When will it happen? Who can put a date on these things? So long as the $US is the worlds default trading currency and the rest of the world holds faith in it, its tradable value will remain relatitively high. The only certain thing is that the general consensus is inflation is on the way due to mounting debt that cant be paid back at current exchange rates, and of course the creation of even more $USs which do not represent any increase in actual productivity. Creating money out of thin air to pay off debt only works so long as other countries are willing to accept that paper money and send real goods in return. Thats been going on for decades and thats primarily what has got the world into this financial mess we are all in now. The housing bubble/sub-prime/banking meltdown is nothing more than a symptom of a much bigger financial imbalance in the worlds economy.

If the $US is to remain the worlds default trading currency in the future it needs to be backed by productivity rather than spiraling debt if things are to work properly. The world might as well be trading in sea shells or cornflakes boxes if the US is just going to go deeper into debt and print more money to pay off that debt. Its a financial system built on faith alone rather than productivity. It cant go on forever. The sooner the worlds faithful figure out they are lending money to an unemployed guy who is paying off his bills on a credit card, the sooner we can get back to a functioning financial system based on productivity rather than debt.

As far as Chinas US debt holdings shrivelling up, -- well, thats the general idea. Good for USA, bad for China. In short, China managed to accumulate a lot of $USs by trading actual tangible goods for US paper money (or at least a promise to pay in $US paper money).