Macro-economic outlook: The US Dollar and its impact

As I was catching up on all the copies of the Guardian Weekly under my coffee table, I noted this interesting tid bit of an article by James K Galbraith:

Of most interest is his take on the impact of the dollar’s fall on the US debt owners, China and Japan:

“Chinese and Japanese behaviour is constrained by creditor’s risk. If they sell too many dollars, the rest of their portfolio plummets and they inflict large losses on themselves. This consideration prompts caution. But if one major player gets wind that others may dump, caution could end. This is exactly analogous to an old-fashioned run on the bank.”

"Since the US owes its debts in dollars, pain will fall first on China and Japan. "

Basically, since the Yuan is pegged to the dollar, imports to the US from China will not be hit too bad, but the debt that the US owes to China will be worth less than before. If the Chinese get skiddish (or any of the US creditors) it could mean a global economic nightmare as the dollar would devalue overnight…kind of like those south american currencies in the late '90’s.