Can our creditors ever call for payment ON DEMAND? If we can't what happens? Do they take assets in exchange for what we owe them? How does that work?
You have to understand how international debt works. These are not loans, but bonds. China buys a US bond for e.g. 98 USD. This bond is a promise by the US treasury to pay 100 USD one year from now. China owns a lot of this type of bonds. Once the bond hits maturity, China is paid 100 USD and the thing it typically does with these 100 USD is it buys the same type of bond again. If it decides it no longer wants to hold US debt, it can do one of two things:
First, it could decide to sell all it's bonds at market prices to someone who's willing to buy them. This would be a terrible idea for the Chinese, since they'll lose a lot of money in this kind of fire sale. Second, it could just stop rolling over the debt and invest its foreign reserves in other kinds of bonds.
In any case what will not happen is that the US suddenly has to pay back all it's debt at once. It will become more expensive for the US to refinance it's debt, since the demand for treasuries will go down, but this is more of a long run problem. Also, it is not trivial to find an alternative asset market that can absorb an investment of 1200 billion dollars without prices going through the roof.
