U.S. hegemony has a strong foundation

[RawMaterials]

NEW YORK Would-be Cassandras have found a new threat to U.S. hegemony: over dependence on foreign capital and growing foreign debt.
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The U.S. economy, according to doubters, rests on an unsustainable accumulation of foreign debt. The current account deficit - the difference between what U.S. residents spend abroad and what they earn abroad in a year - now stands at almost 6 percent of gross domestic product; total net foreign liabilities are approaching a quarter of GDP. Sudden unwillingness by investors abroad to continue adding to their dollar assets, in this scenario, would set off a panic, causing the dollar to tank, interest rates to skyrocket, and the U.S. economy to descend into crisis, dragging the rest of the world down with it.

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The statistic at the center of the foreign-debt debate is net international investment position, the value of foreign assets owned by U.S. residents minus the value of U.S. assets owned by nonresidents. Since 1980, the NIIP has plummeted from 13 percent to 24 percent of GDP, or $2.6 trillion. But to get a sense of the risk this figure actually poses, you have to look at the NIIP's two components: direct investment and financial liabilities (the value of stocks, bonds and bank deposits held overseas).
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Removing direct investment from the equation leaves $5.1 trillion in U.S.-held foreign financial assets versus $8.1 trillion in U.S. financial assets held by foreign investors. This last figure represents 74 percent of U.S. GDP - a statistic that would seem to give cause for alarm. Considering foreign ownership of U.S. financial assets as a percentage of GDP, however, is less enlightening than comparing it to the total stock of U.S. assets: $33.4 trillion, more than four times the value of what is held abroad

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The real threat to U.S. hegemony, then, is not that the sentiments of foreign investors will make foreign debt unsustainable; it is that protectionism and isolationism at home will put an end to the dynamism, openness and flexibility that power the U.S. economy.


http://www.iht.com/articles/2005/02/18/opinion/edlevey.html

one other problem would be, if other country decided that they didn't want the us dollar to be the reserve currencies and instead switched to the euro.

[idlisambar]

1. Nonsense

The entire argument rests on the notion that the U.S. will be able to adjust to a decline in the dollar by ramping up domestic production capacity and then proceding to narrow the trade deficit. Unfortunately, the manufacturing base has been shown to be so weak that it has not been able to respond as expected and so anything less than a dramatic dollar correction will not be sufficient. This is partly because many of our exports depend on imported components that the U.S. no longer makes (or never did make). As the trade deficits continue to grow larger and larger and domestic manufacturing gets more and more hollowed out, the harsher the dollar correction will eventually have to be.

[RawMaterials]

2. until the whole system goes bankrupt

with out anything real to trade, we are just waiting for a ticking time bomb to explode. in the past we could grow our way out of a recession with producing and selling more on the world markets. now we cant produce anything because we have no manufacturing. what happens when the dollar correction leads to a defunct government with no military, or any other program. welcome to the third world, i guess it was a race to the bottom(globalization).