The Impending Destruction of the U.S. Economy

In part 1, we took a look at the causes of the current tug-of-war between forces that will fight over lower and higher interest rates in the coming days of our American economy.

To recap, here's our problem: Americans spend much, much more than they probably should and rely heavily on debt to fund their purchases. A huge amount of this debt is funded by foreign investors who enjoy the relative stability of American markets. As a result, we have an enormous account deficit -- nearly $800 billion per year.

With this massive account deficit comes a weakening dollar. With a weakening dollar, foreign investors will begin to demand higher interest rates to make their investment in the American economy worth their while. Sounds easy enough! But we have that pesky problem of our current real estate and credit disruptions that could place our economy in a tailspin and, hence, require lower interest rates to bail us out. Who is going to win this battle?

In this Fool's mind, it certainly isn't the American consumer. We won't stop our spend-happy ways any time soon, and foreigners will happily look elsewhere to put their money. Here's why.

Superpower America?Don't kid yourself. U.S consumers will go out kicking and screaming before they agree to slash consumption of foreign goods by $800 billion per year; not to mention doing so might self-destruct the economy in the first place. We can rule that option out:
Americans won't retreat from their debt-laden spending habits. But can we count on foreign investors to keep the party rolling? Don't count on that, either.

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