The real threat to the US

In a Crisis towers over the dollar W Joseph Stroupe paints a not very rosy picture of the future of the dollar and hence the United States. He begins with an interesting analogy comparing the dollar to the twin towers of the World Trade Center. I'm not going to repeat that here but it's worth the read. He then goes on to explain the threat to the dominance of the dollar.

Is international support for the dollar and for US policies eroding? Yes, it most certainly is. A powerful case can be made that it has been US policies and actions since September 11 that have resulted in a powerful upswing in terrorism worldwide along with an equally powerful elevation in Middle East instability resulting in sustained crude oil price hike and a resulting dollar decline, both of which are threatening to render serious damage to the big Asian economies. Firm international support for the dollar is certainly flagging. The largest Asian central banks have gone on record that they are curbing their purchases of US debt. And they are also diversifying their huge reserves, steadily moving away from the dollar. The risks have simply become too many and too serious.

International fears of a disorderly, or possibly even a catastrophic, decline in the dollar have been pointedly heightened. Asian central banks are being forced by the varied and serious risks to hedge their bets, not wanting to be ill-prepared in the event of a disorderly decline in the dollar. Russia is also steadily decreasing the percentage of its reserves denominated in dollars, moving toward a level of 50:50 split between dollars and euros. Russia is the key player here, the one the entire world is intently watching. It alone can play the key role in either restoring the flagging international support for the dollar, or completely undermine its remaining support, precipitating a vertical collapse.

Did you catch that," Russia is the key player here"; Russia has the potential ability to bring the US to it's knees like the old Soviet Union never could.

President Vladimir Putin has stated both publicly and privately that invoicing Russia's crude-oil and gas exports to the European Union in euros instead of in dollars makes very good sense for both Russia and the EU. Putin is known to have very close relations with "old Europe", primarily Germany and France. His statements and those of German and French leaders have even on occasion drawn attention to the fact that US global dominance fundamentally rests on the fact that the dollar is the international currency, and that if an exit from the dollar were to occur in the sphere of global petro-transactions, the effect would be seriously to undermine that global dominance. Furthermore, a number of oil-exporting countries have already gone on public record as to their preference to make an exit from petro-dollars in favor of petro-euros. They have indicated that if Russia begins such a move to petro-euros, they will rapidly follow Russia's lead. The net effect would be a rapid international abandonment of the dollar as the international currency, which would in turn "bring down the towers" of the heavily debt-ridden US economy.

The real threat to the US is not al Qaeda or Saddam's mythical WMD but the US government itself.

Federal Reserve Board and government policies over the past 20 years or so have been extremely shortsighted, leveraging the economy's future stability and strength by means of large and perpetual deficit spending.
....[snip].......
Fed and administrative policies have caused a pointed and massive ballooning of very risky forms of public and private debt, all built upon the structural framework we call the dollar. One such form of debt is the massive selling of treasury notes to foreign central banks - most notably to the big Asian economies. Another is the Fed policy of "prolonged monetary accommodation", meaning keeping interest rates at artificially low levels, printing new money at the rate of nearly $1.5 trillion per year and the massive creation of easy credit.

In the past three to four years, debt encouraged by such policies has mushroomed almost beyond imagination. So, in effect, there now exists a mountainous load of debt concentrated within the upper sections of the US economy, where it cannot easily be neutralized to the ground level in an orderly fashion. How much of such massive weight can the framework, the dollar, carry and support before the structure caves in?

Update
Steve Soto has an interesting twist on this.