China has the ability to quickly destroy the U.S. economy by refusing to buy additional U.S. Government debt. While supporters of the Obama Administration paint this as unlikely, how unlikely is it really?

In an article that ran as CNN.com's lead story most of Sunday, Fareed Zakaria--someone who recently suggested updating the Constitution and who apparently has the ear of President Obama--asserted that it's extremely unlikely that China would stop buying U.S. Government debt.

Here in the U.S. you hear many people worry that the Chinese government might stop buying American T-Bills. I think these fears are vastly overblown.

The economic situation between China and the U.S. is the financial version of mutually assured destruction - that cold war doctrine of nuclear deterrence. If you destroy me, I will destroy you...

So ignore all those theories about China doing America a huge favor. The reality is, they have nowhere else to go. We're probably doing them a favor.

In this article, the author went on to diminish the idea of other places that China could invest its surplus: Japan, Europe, British pounds, Swiss Francs... none of those options seem attractive for China either due to animosities between the Chinese and Japanese, the instability of the Euro zone, and the fact that neither the British nor the Swiss sell enough bonds for China to buy. The conclusion is that there's nowhere else for China to invest all its money, so obviously it will continue to invest in the U.S.

But the article completely ignores other possibilities.

China, as other central banks, could buy gold. In a world where so many countries are devaluing their currency, buying gold isn't a bad alternative. While there's a limit to how much gold they could buy (the quantity of gold in the world is not infinite), there's not much of a limit as to how high they could bid up gold with trillions of dollars.

There's also nothing that says that China can only buy government debt and commodities. China can also buy companies, and they are.

The Chinese have been busy buying companies around the world the last decade. They've bought U.S. companies at least as far back as the early 2000's. They've been buying U.S. general aviation companies. Lenovo-IBM. They're buying British businesses.

Aside from the nervous reality of a communist country going out and buying the "means of production" around the world, the truth is that these kinds of purchases are increasingly insulating China from its inevitable future losses on the U.S. dollar, and the unsustainability of the current model where it exports trillions of dollars worth of products to countries around the world that finance those purchases by borrowing money from China (or by printing money).

By buying commodities or companies that actually produce wealth, China has the potential of becoming increasingly independent of the U.S. Treasury trap that some seem to think has the U.S. and China forever locked in an economic mutual assured destruction that will never be triggered.

Of course, this M.A.D. scenario assumes that China actually cares about its citizens. While the government of a free society must give due consideration to the well-being of its citizens, one has to wonder whether China would give priority to the short-term well-being of its citizens when faced with the potential elimination of the world's economic and military superpower. With both Europe and America struggling, China could launch an economic "first strike" by refusing to buy any more debt.

The turmoil that would cause--and the domestic unrest higher unemployment would cause in China--would seem to suggest that if China's going to go down that road, it might as well go all the way down that road and divest from U.S. Treasuries. The consequences of that could be economically catastrophic to most of the developed world.

Would China do that? That depends on whether China considers the west a long-term economic partner or a foreign threat. They've been doing a lot of economic saber rattling necessary--going so far as to lecture us on good financial management, reducing dependence on the dollar , and calling the dollar a "product of the past." Sure, it might be saber rattling. But if they pull the trigger no-one can say they didn't warn us.

Even if China doesn't launch a devastating economic war against the west, there's a larger question.

Using Zakari's logic in article cited above, the U.S. continues to borrow money from China because there's nowhere else to borrow that much money and China has nowhere else to park that much money. The government then engages in deficit spending which puts that money in the hands of Americans who go out and buy Chinese goods. All those dollars go back to China where China then loans it to the U.S. Government to engage in more deficit spending that puts the money back in the hands of Americans.

So we have the Chinese lending us money so we can spend it to buy more Chinese goods so they can lend it to us again.

This circular economic configuration cannot--and will not--be sustained over the long-term. As is often said, "If something can't go on forever, it won't go on forever." The only question is how this will end: Will America end the cycle by getting its deficit spending under control, or will China end it by no longer buying U.S. debt?

Everyone is entitled to their own opinion as to the answer to that question. But considering the circus we saw in Washington last month to even reducing the increase in government spending over a decade, it doesn't seem that Washington will be reducing our deficit spending anytime soon. So it's entirely possible that China may ultimately be the one that decides to stop throwing good money after bad, and ceases to sustain the unsustainable.

Zakaria might think that possibility is unlikely. I, however, am far less convinced.

We should all consider the ramifications to America and the world if Zakaria's attitude regarding China is wrong.