So no, it wouldn't be business as usual...if this were a real story.
The USD being world reserve currency has been printed far beyond the needs for internal domestic trade. The US had to do this to lubricate world trade, however when the music stops all those dollars held in foreign banks will try and make their way home in order to obtain some value. A flood of dollars will then start bidding for goods and services from the US economy. Instant hyperinflation.
The US haven't defaulted on their debt because the roll over their debt with more USD.
The member banks of the federal reserve are required to buy government debt if nobody else will.
I just checked the numbers, and in 2011 the second quantitative easing (aka "printing money") was 600 billions, and the third is 40 billions every month. And it doesn't have any impact on inflation (which remains a bit of a mystery to me, unless this money is instantly used by the banks just to balance banks internal debts and taken out of the economy).
But it wouldn't in and of itself cause catastrophic hyperinflation. Not on an ongoing basis, anyway. Continuing inflation requires continuing increases in the monetary base (or monetary velocity).
The whole thing is kind of moot since China would be committing economic suicide by doing this.
Meanwhile will the rest of the world be willing to ship real goods and services in return for promises of ever more paper IOUs from the USG, and when those paper IOUs are due, the promise of even more paper IOUs?
If this all sounds sustainable, I have a deal for you. I want to borrow $100 off you and I'll pay you $105 next year. Don't worry, I'm good for it. I'm also lending myself $200 and will pay myself back $210 next year. So how about it? Clearly the 5% interest rate is what has been set by the market (me) so you are getting a good deal.
Next year comes around and I hand you some paper IOUs for $110 the next year. Meanwhile, I'll borrow another $100 off you. I've been living it large and need a bit more sugar. Don't worry, I'm good for it - I'll lend myself another $200 too!
Good analogy though, because separating conjoined twins in a manner analogous to dumping all its bonds would kill both. The US economy would be in ruins, and the US would reply the only way it knows how, war. I suppose war is as much an economic tool as anything else. But there is another reason why China could never dump its bonds, it would destroy its biggest market, the US.
Capitalism, the biggest force for peace we have....... (If reading that last bit made you feel nauseous, imagine how I felt typing it. Im trying to kid myself it's ironic, but its not working.)