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Maybe China didn't like that S&P downgrade so much?

March 1, 2012: 4:40 PM ET

We are your overlords!

China still owns a LOT of U.S. Treasury debt. But it looks like they got rid of more of it last year after Standard & Poor's stripped America of its triple-A credit rating than first thought.

Every month, the Treasury Department puts out a report showing how much foreign countries hold in U.S. securities. The latest report came out in mid-February and showed that as of the end of December, China owned about $1.15 trillion. That was only slightly lower than the $1.17 trillion that China held in June.  So it would be tempting to suggest that China didn't bat an eye after S&P downgraded Uncle Sam.

However, the Treasury Department posted revised figures late Wednesday. The new totals showed that China had $1.31 trillion in June. China added to its holdings in July. But that was the peak. And instead of China selling off about $70 billion of Treasuries, it turns out China unloaded more than $160 billion between July and the end of the year.

That might be bad news. Sure, the Fed continues to be a willing buyer of last resort for Treasuries. And that's helped keep long-term rates low. But if the U.S. can't count on China as much, that may be a problem.

Of course, it's impossible to know if China really was dumping more U.S. bonds because of the downgrade or if it just wanted to further diversify its portfolio away from dollar-denominated assets. I wrote a Buzz column about this last month and experts suggested that China isn't necessarily souring on the U.S. It is just doing what any smart investor would do. China also probably is looking to boost its investment in European bonds in order to help its largest trading partner out.

Nonetheless, I worry that China may have further reason to sell Treasuries in the not-so-distant future. Washington is a mess. It's hard to have any faith in political leaders to come up with the type of long-term fixes for the budget deficit that will keep ratings agencies happy.  What will China do if the U.S. gets downgraded by S&P again? Or if Moody's or Fitch decide to follow S&P's lead?

Like it or not, China is sort of, sing the next words with your best Robert Plant "Immigrant Song" howl, our overlords. Our elected "leaders" in D.C. would be best to not tick them off any further. It would be scary if the 2010 Gary Shteyngart satirical novel"Super Sad Love Story" became reality. Spoiler alert for those who haven't read it: China gets tired of owning worthless Treasury debt because the dollar continues to plunge. America quickly succumbs to Third World status.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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