China and the liquidity trap

by Paul Krugman

I liked this David Leonhardt article about the China-US economic relationship. But I do have a problem with this passage:

The most obviously worrisome part of the situation today is that the Chinese could decide that they no longer want to buy Treasury bonds. The U.S. government’s recent spending for bank bailouts and stimulus may be necessary to get the economy moving again, but it also raises the specter of eventual inflation, which would damage the value of Treasuries. If the Chinese are unnerved by this, they could instead use their cash to buy the bonds of other countries, which would cause interest rates here to jump, prolonging the recession.

more in:
http://krugman.blogs.nytimes.com/2009/05/15/china-and-the-liquidity-trap/