Being heavily involved in the housing sector I have as many watched with dismay as the credit sector has burst and is trying to tread water on optimism.  But as I watched with dread as the Fed held steady I was forced to reaccess my view point.  Prior to the Fed the American economy was a pay as you go society.  The credit collapse of the Great Deppression created a sub class in America.  The dollar collapsed and all was very painful.  Due to Governmental involvement the Great Depresssion came about.  As did a Federal Department to deal with the "New Deal"  which in historic terms was the conversion of a stock correction to a long lived deppression.  Yesterday the Chinese Threatened to use our own debt against us.  But what is debt but numbers on paper?  In my business I have seen how debt can destroy a busin3ess.  My business is all Cash on Demand at time of service due to extending credit in the form of carrying the client billing for 60-120 days.  All without interest.  So I ponder,  if China uses the "Nuclear Option" on the dollar, what consecuence will occur?
China has become the cheap manufacturer to the world and the US the heavy fat consumer.  It is a sybiotic relationship.  What China will actually do is forse the US back into revitalization by awakening the sleeping giant.  
With the dollar collapsed and the credit markets in turmoil the consumer goods from China will no longer be in demand.  As was seen in life the cure for a hangover is not more booze.  The easy and open credit which has driven America from a manufacturing nation and economy into a service economy was easy access to credit.  money was tied to a number on paper not an actual substance. 
This nuclear option will be painful as is all growth, but if the Fed holds firm and the congress forces China's hand it will cause the old machinery of manufacturing to start shaking off the rust..  It will trim down government as the outcry will be a cocophany of whining.  Just watch Cramer's meltdown.  The overmanagement of the money by the Fed is what caused this mess.  Watching the institutional lenders on Wall Street is like watching a junky during detox.  America as a debtor nation has to stop,  due to cheap money we have stopped producing and started stealling and acting like idiots.  We are becoming a Banana Republic.  So I believe that the Chinese threat to American economic strength is actually the tonic which will cure the problem in the long run.  But America must first go through the pain of detox and then of rebuilding from a solid foundation.