IMO, both you guys make excellent points. You're both right!
> The real worry is what happens when countries reallocate away from US treasury bonds? If the US/allies can just decide to confiscate Russia's assets, every country has to be looking at an alternative
With the US effectively having control over global market monetary flow via multiple means, I don't see other countries having too much choice there. They can absolutely diversify, sure, but I don't think they can ever fully reallocate away, at least not without "forking" the international order (such as it is) nearly in its entirety, and anyone trying that would never accomplish their objectives, just too much risk for too low-probability of success. Besides, nobody's crazy enough to dump the world's richest economy entirely.
Though I would say that unless the extreme wealth inequality problem gets smoothed out by sometime in the next ~30-50 years or so, probably not even that long, we'll DEFINITELY see a MASSIVE DROP in foreign investment because there won't be anyone here with enough money to buy anything anymore.
We've already seen huge reductions in consumer discretionary spending just in the last 6 months (war, pandemic recovery, consequences of treasure injecting tons of money into the economy, inflation, etc.). Food, energy, housing: you can't choose not to have any of these, not realistically. Which means cost increases there force cut-backs anywhere that IS optional (eating out, entertainment, charitible donations, vacations, etc.). My rent, for example, for a shoddy 1br, jumped from apprx $750/m to nearly $1000! And this is in a craptastic area, too! Others have had even larger jumps in cost of housing.
The politicians tell us businesses invest where there's low taxes; that's bullshit. Businesses invest where PEOPLE BUY THEIR STUFF. But if US citizens no longer have enough money left over to buy things, why the hell would anybody invest in the US?
So yeah, either we address this wealth inequality problem now, or we'll be FORCED to address it later when mobs start to gather because there's no food, no jobs, and no other options.
> Are any countries actually looking for an alternative except Russia?
I'd think China would be looking for not just one, but a handfull of trading partners to essentially "replace" the US, especially if those countries are somewhat more malleable when it comes to China's influence on their foreign and domestic policymaking. If China can groom and invest in a sorta "cabal" of various countries, that offers them a significant hedge against US volatility and insulates them against trade disruption with us while providing an eventually-equivalent investment vehicle, even if they do need half a century or more to build it up. Those folks think in terms of decades, centuries, and generations unlike us with our next-quarter shareholder earnings reports and such...
Following that line of thinking, consider the various countries all over the world that the US has alienated with decades of...questionable...foreign policy. Much of Central and South America comes to mind, along with the middle east and parts of Asia. China has a real opportunity there to build out a major geopolitical partnership amongst many nations in those regions, and with wealth transfer from the US toward China over the last ~35-50 years already having taken place, there's definitely capital to flow from China to those other places, and therefore incentive for those other countries to play ball - by China's rules, not ours.
And if another major player on the world stage, a UN Security Council member no less, offers those smaller, struggling economies that alternative option? Oh hell yes they'll be looking and interested. And with things being really bad in some of the aforementioned places, they'll have no choice but to jump in with both feet. Not much of a concern in the short to medium term, but could change the course of economic history over the next few hundred years.