The falling dollar coupled with the rising deficit. We are playing a game of financial chicken. Our deficit is being financed by the willingness of the overseas community to buy our bonds - according to the article linked, 83% of it.
83 per cent.
And the only reason they are willing to buy our bonds because of the perception that our currency is strong. And our currency is rapidly becoming less strong.
What if they stop buying our bonds? And why wouldn't they?
"If new official flows to the US were to be curtailed, the dollar would plunge, creating a huge hole in the accounts of central banks holding dollars.
"The risk exposure for Asian central banks is already great," concluded Matthew Higgins and Thomas Klitgaard of the Federal Reserve Bank of New York in a recent paper.
It is sobering to remember that the Soviet Union fell because Osama Bin Laden roped them into bankrupting themselves fighting a foreign war.
"A detailed survey out today suggests that central banks are increasingly moving official reserves out of the dollar and into the euro.
Asian central banks are unlikely to pull the plug on dollar assets altogether. But they may be close to ending their willingness to provide cheap financing for an ever increasing US current account deficit."
This has the potential for genuine disaster, and nobody seems to be doing a damned thing to curtail it.
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