The United States sooner or later may be forced to bail out ailing Chinese banks, according to a provocative thesis by Alexander Friedman, global chief investment officer for UBS Wealth Management.

His reasoning — since China owns such a huge amount of U.S. government bonds, if it is forced to dump them in order to prop up its own economic system, the ripple effect would drive U.S. interest rates skyward and cause turmoil back in America.

Friedman said the People's Bank of China has piled up $3.5 trillion in foreign reserves, primarily U.S. Treasury securities.

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"The fact that a single institution wields so much influence over global macroeconomic trends has caused considerable anxiety, with doomsayers predicting that doubts about U.S. debt sustainability will force China to sell off its holdings of U.S. debt," he wrote in a column for Project Syndicate.

The impact if China were to dump its Treasuries would drive up U.S. interest and could trigger the dollar's collapse, Friedman claimed.

Over the past decade, huge quantities of short-term capital from China's exploding exports have been injected into China's banking system, enabling a shadow-banking system and resulting in a massive credit bubble and over-investment, by many accounts.

In the event of a crisis, China would most likely be forced to sell off its massive Treasury holdings, Friedman predicted, and the Federal Reserve should prepare itself for it.

"After spending years attempting to insulate the U.S. economy from the upshot of its own banking crisis, the Fed may ultimately be forced to bail out China's banks, too. This would fundamentally redefine — and, one hopes, rebalance — U.S.-China relations."

David Gompert and Terrence Kelly of the Rand Corp. wrote in a Los Angeles Times op-ed that both the United States and China have developed contingency plans to strike the other first in the event of a dire unresolvable crisis, because waiting would be too costly in terms of potential military losses.

"Such events are improbable but not implausible," they wrote.

Gompert, who served as President Obama's principal deputy director of national intelligence, and Kelly said, "Political leaders in each capital should not wait for a crisis before scrutinizing war-fighting plans and insisting on ones that strengthen, not weaken, stability. Given the stakes, plans to win must not be allowed to make war more likely."

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