[quebecois]

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.

[SauronOfMordor]

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.

Investment money will only flow into the US, if the companies to be invested in will be producing products that can be sold. The bottom line is that eventually the investments have to (directly or indirectly) result in exportable products that can be sold abroad to redeem those dollars. If that prospect is not on the horizon, the inflow will cease

China has been holding off problems with its own economy by exporting unemployment to the US (exporting products made with low wages in China, but not allowing US companies free access to the China market). If the US market suddenly goes sour, China will have to deal with tens of millions of its people who wll not have the funds to buy food -- a recipe for insurrection.