"Will a Moodys downgrade of US credit hurt TIPs as it would regular Treasuries??"
"If interest rates go up I would assume that the TIP would take a beating."
However, this assumes that a Moody's downgrade actually causes interest rates to rise. Moody's warned yesterday and interest rates actually fell. Also keep in mind that Japan does not have an AAA credit rating and their interest rates are even lower than ours.
Further, where is the money going to go? Note that TIP fell today but the stock market did too. It strikes me as a blind panic into cash today. That will work great if inflation turns to deflation, but I doubt that will be the case over the long-term.
As for China, they will stop accepting dollars when they stop wishing to sell us goods. I don't think that's going to happen anytime soon. I don't believe their economy is anywhere near as good as the "experts" proclaim. If nothing else, their stock market isn't exactly making new highs. In fact, it's down about 50% from its peak in late 2007. Taking our dollars in exchange for hard goods is an act of desperation in my opinion. They've got a billion people they are trying to keep employed.
The world is desperate and cornered. It's going to be a wild ride.
I remain comfortable sitting in long-term TIPS for the long-term. The alternatives look even worse to me. For example, stock market investors should realize that it is our debt that's propping them up.