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The dollar is being artificially propped up by foreign govs to keep their products affordable here. If the dollar drops, foreign products increase in price here and in other countries where their currency is strong.

If it does drop, then our products will be more affordable in other countries, but some countries will be hurt badly, like Japan who depends on exports to survive. Prices for all imports, including oil, will increase here and generally, the world's economy will slow, hurting everyone, since we are the engine of the world's economy. If the US has economic sniffles, the world has a cold.

The bottom line is this: our current system depends on essentially a circular flow of dollars. We purchase huge amounts of goods from abroad, and the dollars return to the US via investment in our economy by these same foreigners. But if the investment dollars cease to flow, the dollar will go into a freefall.

This is the real problem with the recent corporate accounting scandals. We sold the USA as a great investment destination based on wildly profitable numbers during the 90's. Many foreign investors were astounded by just how great the numbers were...and now they know why...those numbers were phoney. This is one of the big reasons why FDI (foreign direct investment) in the US economy is dropping (China recently passed us up as the #1 destination for FDI): foreign investors don't trust our numbers anymore.

History shows that when a trade deficit passes 5% of GDP, that country's currency takes a big nosedive. I believe that our current deficit is around 6%. We have been living way beyond our means for a long time....but its been a comfy ride because its one heck of a sweet deal....we consume at a steep discount. But it won't go on forever.

A dollar is a claim on US production. A dollar only has value if it can be used to buy "stuff" -- otherwise it is just a piece of paper. A deficit cannot be sustained forever, any more than you would keep accepting $1,000 IOU's from me indefinitely

Eventually real prices for imports will rise, and prices for US exports will fall, to the point where the dollar value of exports equals the dollar value of imports. What that will do to living standards in the US is another story -- it won't be good in the short term

What has been happening over the past few years is that the US has been exporting dollars in exchanged for high priced oil, and low-priced Chinese stuff. Since the Fed does not want to crank up the printing presses and creating large-scale inflation, that means there are fewer dollars in the US to buy US-made goods, which results in unemployment, as US companies are unable to sell enough of their product.

Money is to a country like blood is to the body: as long as it circulates, the body is healthy. But if you bleed out too much past a threshold, you die.

"Net foreign direct investment has collapsed, from $308bn in 2000 to an annualised $14bn in 2002."

The Europeans, Japanese, and the Middle East are waging economic hard ball.

They apparently are doing this in concert and relishing the fall of the U.S. dollar (and look forward to the U.S. living standard being brought down as well).

Within the next twenty years, we face the threat of becoming a third-world economic power:

* The rise of the Euro dollars buying power will overshadow the U.S. dollar.

* America will increasingly shift from being an industrial power to an economy fueled largely by the less advanced and much more unstable "Services" industry.

* America will continue to export it's heavy and light industries overseas where cheaper labor is abundant.

In short, there won't be any more "Miss American Pie."