You are going to laugh at this John, but the Chinese are the debtor nation. The debt of the United States is the money for the world. The problem is the US has run out of collateral. The 1920's demanded gold for international exchange. International exchange has been built on US treasuries and money has been created in a lot of different manners. One of them was shorting Japanese bonds and using the proceeds to finance debt around the world. That has fallen apart, as the forced cuts in interest rates around the world caused the yen to rally, putting the reverse squeeze on the borrowers of yen. Thus the Japanese are bankrupt, yet the world is having to scramble to buy their bonds to unwind this trade. The Chinese are buying Japanese debt to keep from buying the dollar. The Japanese government is 2 years GDP in debt, it is income is 40 trillion yen, expenditures in the 93 trillion range and its debt is 1 quadrillion yen. Thus they owe 25 years government income and their income hasn't moved since the mid 1980's.
If the US paid off all their debt, the monetary system of the world would collapse. What the Chinese are doing reminds me of what happened in the Dallas area in the 1978 to 1986 time period, where they were throwing up an amazing number of office buildings every year, despite leasing only half the space. In the end, it ws the outfits building and financing the space that were moving into it. 20 years later, downtown Dallas was still 30% vacant. I have read where 65% of the Chinese economy is capital spending on plant, commercial and residential buildings. Something that can't go on forever won't.
The talkers at Pimco are quite interesting. I used to listen to them, but I have read enough of what they say to realize they are just another Goldman Sachs, making money by hook or crook. What the guy says is absurd, that you bail out a default before you have a default. Thus, those that can see default coming don't get out of the way, but pile in so they can make money getting bailed out. Who is going to bail out those that do the bail out? Ireland is in trouble because they guaranteed their banks before they defaulted.
Where I would start is I would bankrupt the banks and I would force the depositors to take a portion of their deposits in stock. I would exempt maybe $25,000 and the rest there would only be a percentage left in the accounts. The uninsured bond holders and stock holders of the defunct banks would get nothing. That is what is supposed to happen when you run a reckless ship and hire idiots or listen to bad advice in investing. There is no other way to fix the balance sheet, which is all a bank is, a system of debits and credits, the credits the only thing that extinguishes the debits other than default. The management should be fired and the bonuses paid for creating this mess clawed back. The minimum wage should be cut in half and the government should devise a formula to make sure people eat and have a place to live over the near term while the price structure re-adjusts. We would have a worldwide depression, but we are going to have one anyhow and this would get the crooks out, clear out the bad debt and get the country and world to a starting spot. The alternative is the thing totally collapses as they print money in ever faster paces to bail out entities and then bail out the bail out. The problem is the bottom of the developed worlds population has been sucked dry and the rest of the world never had anything on the bottom to suck dry because the oligarchies in countries like China impounded the wealth and they never had it in the first place. America's bankers and fraud artists like GE capital destroyed American industry with the aid of the government. Continually forcing money and debt into the system forces flow outward, just like pouring water on top of spilled water forces water from the puddle.
You can't fix a balance sheet made up of assets of dubious value, like stocks and real estate. You can clear out the bad debt and fix the balance sheet to some extent by the method I wrote above because the debt is the money. The government can then, after the bad debt is pulled out, put out enough money to get payment flowing on what is left. Bernanke is trying to fill a swimming pool with a measuring cup, but if he threw in what was needed it would splash out and the US would find itself, contrary to what I wrote above, hopelessly in debt. He would destroy the monetary value of the dollar.