Treasuries the most commonly used name for US government bonds because they are issued by the US Treasury. Since these bonds are backed by the “full faith and credit” of the US government, they have traditionally been considered risk free. If we look at the essence of this backing, the reason why any government has the ability to guarantee its debt obligations is simply that it is able to print any amount of money and repay absolutely any debts.

The US government have always been looked at as a reliable guarantor, and the US dollar as one of the world’s most stable currencies. But this stability is not guaranteed. Just a week ago Chinese Premier, Mr. Wen Jiabao expressed serious concern about the security of his country’s huge investments in the US Treasuries. This would probably sound like some sort of a sick fantasy just 20 years ago, but today “poor” China is the largest creditor of “rich” America. It is estimated that China holds about two trillion dollars in US dollar denominated assets, mostly government bonds.

No wonder they are concerned about the possibility that the already historic high level of US government debt combined with their current reckless spending may lead to a mass devaluation of the US Dollar. This statement was taken so seriously that the White House was quick to reject China’s concern and offer words of reassurance to the world that their investments are safe and US currency is stable. Of course, this was the only possible response – the role of any government is to promote confidence. Imagine what can happen if China pulls all its assets out of US assets! And what if other countries follow suite?

While the general consensus in the investment world is that the United States is still one of the safest places to invest, there are many alarming signs indicating that a massive collapse of the US Dollar is possible. The unprecedented week fiscal position and huge amounts of US dollars held by foreign governments whose confidence is shaking is a dangerous combination. This crisis is challenging some of our assumptions, including things we used to take for granted. The unmatched safety of US Treasuries is one of them.

Nikolay Sisan is a Certified Financial Planner and freelance writer in Vancouver.