Thinking back to Spring when the data began to slide in earnest, the Fed began to publicly extricate itself from the Treasury. The mess that has erupted shows the Fed's move was a smart one. The extreme balance sheet holdings do have some unintended consequences, however. The open promise to do more if the economy drops out has clearly emboldened Congressional game playing. The Fed is wise to be as close to the sidelines as possible with no budget to evaluate but negotiators on both sides must feel The Bernank will monetize their mistakes.
The largest holder of US Treasury debt is now ourselves. That large position has helped mitigate what would have been THE debt ceiling/budget scare tactic. With all he press conferences and fear mongering, few have turned the China card. Japan would have little reason to sell. China, however, is already diversifying its reserve balances and could be far more vocal in their displeasure. Culturally, I would suggest decreased participation is more likely than dumping. I keep coming back to a rare interview from 2 years ago with the Managing Director of the China holdings: "America must learn to be nicer to the people that lend it money."