A couple of days ago, I read a sobering article penned by Ph. D economist, Francis Ferguson at: http://www.opednews.com/articles/2/opedne_francis__080225_the_emerging_t... [1]

In his article, (edited below) Dr. Ferguson scarred the living dog poo out of me. Like most folks, I'm a lay person when I sit in a lawyers, MD’s or an economist’s office. F. Ferguson lent comprehension to my ignorant lay mind, exactly where the U.S. economy "is" and where it's falling towards. (Bankruptcy of U.S. currency).

After reading a tightly condensed (by me) version of what he wrote, go to the unabridged article. . . Before you do though, relax in a hot tub of water to fend off the chills that'll xylophone up and down your exposed vertebra.

“The US is a a third world nation, we just haven’t realized it yet. Our emerging status isn’t obvious. Products remain relatively cheap (energy excluded) despite the falling value of the dollar against most foreign currencies.

Why are the Chinese, Japanese, Indonesians and others willing to hold claims against US dollars, claims they aren’t going to use to buy US made goods or services?
This was a question that plagued me as an economist trying to explain the workings of currency markets and free floating exchange rates to interested students. Under normal market circumstances, the Chinese and others would simply convert dollars into currencies they were interested in using for purchases of imported goods; the value of the dollar would fall and that would make US goods cheaper, US imports more expensive and would tend to equalize our balance of payments situation. But that didn’t happen. The US has been in a consistent balance of payments deficit since the early 1970’s, and somehow the dollar didn’t fall, US exports continued to shrink and US imports exploded. There are several factors at work, here.

The first is the fact that countries like China are seeing their development fueled in significant measure by sales to the US. If the Chinese cashed their dollar claims in for, say, Euros, the dollar would collapse effectively ending the US’s ability to power Chinese economic growth. This collapse of the dollar would also mean the Chinese and other dollar holders would only get a fraction of their nominal dollar wealth in the form of Euros—they’d lose their “dollar gains”.
What the Chinese, and other dollar holders, have chosen to do is to buy US Government bonds, US corporate bonds and US properties. In effect, we purchase more from China than they intend to buy from us, and they simply lend the money back to us. In this way, the get interest earnings, and rents and profits from the US lands and businesses they purchase. In a real sense, the Chinese have financed the war in Iraq and Afghanistan.
Finally, should dollar holder dump dollars indiscriminately, they would scrap their holdings of the very currency they need to purchase crude oil from the OPEC nations who, until recently, have agreed to sell oil only for US dollars. Dollars used to purchase crude oil are called ‘petro-dollars’. A very significant component of the world demand for dollars has to do with buying petroleum. It’s interesting to note that, apparently, Saddam Hussein was proposing selling oil in currencies other than dollars before we deposed him. Equally interesting is the fact that Iran has been selling oil to China in Yuan.
The ultimate point, here, is the absolute unsustainability of the US’s position. We cannot expect our trading partners to hold dollars in unlimited quantities, and as we’ve no hope of being able to achieve a positive balance of trade, that’s exactly what we are effectively seeking. That nations are cautiously moving out of dollar holdings is revealed by the rather steady overall decline in the value of the dollar over the past three years. This will continue.

With the falling dollar, rising import prices and declining wages and salaries for American workers, the US is headed for a radically different lifestyle. Until US wages fall far enough to make us competitive with workers in developing nations, our decline will continue. Globalization let this evil genie out of it’s bottle, and it’s not clear that anything can force it back.”
--- Francis Ferguson