Uncle Spendthrift can’t support the lifestyle he has become accustomed to.

Uncle Spendthrift spends billions of dollars per month on an open sore in Iraq.

Uncle Spendthrift reduces revenues by doling out favored tax breaks to his preferred constituencies.

Uncle Spendthrift raises the debt ceiling to allow him to borrow money to support his folly.

The Chinese people save as much as forty percent of their earnings.

This gives the Chinese Central Bank a large pool of domestic funds to operate with.

The Central Bank of China uses that large pool of wholly owned domestic funds to come to Uncle Spendthrift’s rescue and buy his IOUs in copious amounts over the years.

The Chinese Central Bank now has a huge fistful of Uncle Spendthrift’s IOUs, a mounting financial mass to hold over Uncle Spendthrift’s head.

As the size of Uncle Spendthrift’s indebtedness to China mounts, China gains greater leverage over him in a whole host of negotiable areas such as Iran, North Korea, intellectual property rights violations, floating the Yuan and so on. 

Uncle Spendthrift is not using the borrowed funds to do long term capital improvement by investing in infrastructure, education and so on, but to raise pork and pay for his lavish expenditures on the Iraq boil and to keep from taxing those cherished favored interests.

Crazy Consumer is saving negative amounts, spending her capital as she re-mortgages her bubble house, and her future, to sustain her self indulgent lifestyle.

The Chinese Central Bank pegs the Yuan to the Dollar (US) rather than letting the Yuan float in a free market style.

The peg is under valued by an amount significant enough to make Chinese goods exported to Uncle Spendthrift’s naughty child Crazy Consumer very cheap.

The peg is under valued by an amount significant enough to make Uncle Spendthrift’s goods very expensive and uncompetitive in the Chinese market.

Uncle Spendthrift hemorrhages jobs in increasing torrents as his manufacturing capability is off shored, largely to China’s cheap labor pool, to make his goods somewhat price competitive.

Crazy Consumer doesn’t care – her appetite for self indulgence knows no bounds and the Chinese take advantage of that through globalized Corporate America, resulting in a huge and growing trade deficit.

China is flush with Uncle Spendthrift’s hard currency because of Crazy Consumer and Uncle Spendthrift’s rotten leadership beholden to the international corporations that are promoting Crazy Consumer’s gluttony.

China has the wherewithal, largely due to the trade deficit (202 Billion Dollars at last count), to wheel and deal very competitively for resources in the global market.  The resource wars have begun.

China doesn’t bother to bid competitively for those resources on the world market, but rather buys mining and wellhead rights from friendly and unfriendly regimes around the world.

China’s aggressive strategy is to “own” and operate the resources rather than depend on international contracts for delivery from someone else’s mine or wellhead.

This drives, among other things, the price of fuel at Crazy Consumer’s pump up and up as China ups the ante in the global competition for finite and often scarce resources.

China noticed Uncle Spendthrift’s Iraq oil grab, thinly justified as first this and that and then something else ad nauseum, and decided it had to secure its own supplies before Uncle Spendthrift occupied all the good resource fields.

China has been using its hard currency, earned from Crazy Consumer, to build up and modernize its military in anticipation of future confrontations over resources that Crazy Consumer will cry loudly to Uncle Spendthrift about if she doesn’t get them at the bargain basement prices compared to the rest of the world that she has come to expect as her birthright.

Uncle Spendthrift, rather than look to cleaning up his own act, will puff up his chest and wax belligerent with China, as is his wont.

China will mobilize its huge modern military and refuse to buy any more of Uncle Spendthrift’s IOUs, and maybe even call in some or all of that debt.

Uncle Spendthrift’s hard currency softens considerably under this threat and/or attack, and loses its place to the Euro as the world’s reserve currency.

Things deteriorate fast from there as Uncle Spendthrift’s IOUs are reduced to junk status and are unloaded by his largest creditors Great Britain and Japan.

The day of reckoning has come for Uncle Spendthrift, to say nothing of Crazy Consumer.

Epilogue: your guess is as good as mine, but one thing is certain – it will be a much different world.