It may be hard to believe but the WSJ reports that Chinese sovereign wealth fund - China Investment Corp.,"has applied to participate in the U.S. Treasury's temporary guarantee program for money-market funds." This at a time when Bloomberg reports that"China's foreign-exchange reserves rose to a world record $1.906 trillion, helping to strengthen the nation's finances as the credit crisis threatens to trigger a global economic slump."

If anyone sane is still minding the store at treasury, they will decline the application. It should not be the business of the American taxpayers to save private individuals from their investment mistakes. It is certainly not the business of the American taxpayers to save foreign states from their investment mistakes. Nor is impossible to exaggerate the damage such a precedent would set.

Being politically manipulated, sovereign Wealth Funds present an imminent danger to America's independence. Hence, nothing will serve the US long term interest better than proof of their inefficacy. How important are they?

The estimated $3 trillion assets of the SWFs are expected to double in the next few years. Different estimates suggest that their assets may rise further to about $ 6-10 trillion within five years, the IMF noted.

Global insight, the leading company for economic and financial analysis worldwide, announced earlier this year that SWFs have been growing by 24 per cent annually for the past three years.

"Projecting out this annual growth rate, sovereign wealth funds will surpass the entire current economic output of the United States by 2015, and European Union by 2016," forecasted Global Insight.

We have already played dearly for Middle Eastern shenanigans. First, the region's pumped their SWF money into banks lulling us all into a false security and convincing a growing percentage of economists of SWF's essential benevolence. Then, Middle Eastern funds suddenly stopped investing in the West preferring to park their money in Asia. Of course, they used economic arguments to justify the switch. The result? A near collapse of the American financial structure.

Only the discovery of their own vulnerability convinced the oil sheiks to change course. For as Bret Stephens so pointedly put it, "But when the tide laps at Gulliver's waistline, it usually means the Lilliputians are already 10 feet under" and those Lilliputians include the Gulf states. Their markets also crashed and their financial institutions also needed bailing out. Moreover, American stock market collapse has been accompanied by an oil price collapse.

At this moment, it seems as if the little heralded democratic flexibility and solidarity the G-7 demonstrated, may just survive. But next time, and if we do not deal with this growing financial dragoon, there is going to be a next time, we may not be so lucky. Already, the sheiks may have succeeded in getting the American president of their choice elected. Hence, while I do not believe China played a part in bringing about this crisis, it would be a huge mistake to bail out China Investment Corp.

Update: In With US Budget Deficit At $455 Billion, Government Options Narrow WSJ's Douglas McIntire points out some home truths:

Bringing in more money for the current government fiscal year may not be that hard. If, that is, China and oil-rich nations in the Middle East will keep buying US paper. If not, the ability of America to throw capital at problems like bank losses could be significantly impaired.

The reason that rich overseas nations would continue their infusion of capital into the US Treasury is that it is self serving. If the US has money, it can fund economic expansion. That allows America to buy more oil and import more goods from the Far East. China's exports to the US keep growing as does its GDP. OPEC states get more capital and simply get richer. They may let some of their money out in the form of sovereign fund investing. In reality, the dollars are buried deep beneath the sand. Rainy day funds.

The re-cycling of money into the US out to wealthy nations and back in the form of buying US treasuries works until it doesn't. If a deep recession develops, foreign nations may get nervous about the ultimate value of American government paper. That may not be a reasonable position to take, but panic does not always lend itself to clear thinking.

The pipeline of cash into the US could be shut down.