Declining dollar and economic interdependence.

In mid-October, the dollar fell below $1.26 per euro "for the first time since February, erasing this year's gain," reported Bloomberg financial news service on October 20. "Speculators are loading up with boatloads of euros," commented currency trader Grant Wilson of Mellon Financial Corporation. Summarized Chris Melendez, president of Tempest Asset Management in California: "We think the soft patch in the U.S. economy is getting softer."

In addition to the Dow descending below 10,000, crude oil reaching prices above $55 a barrel, our trade deficit approaching 6 percent of our gross domestic product, and the Treasury Department using Enron-style accounting tricks to avoid piercing the $7.4 trillion national debt limit, there were troubling indications that foreign investors might begin bailing out of the U.S. economy. Time October 19 New York Times reported that foreign investment in the U.S. declined sharply in August--to $37.4 billion, down from $72.9 billion in July. The decline would have been even more pronounced if not for the intervention of Asian central banks to prop up the dollar.

"Foreign central banks saved the dollar from disaster," stated Ashraf Laidi, chief currency analyst at MG Financial Group. "The stability of the bond market is at the mercy of Asian purchasers of U.S. Treasuries." Stephen S. Roach, chief economist at Morgan Stanley, summed up the situation in ominous terms: "If all we have funding our current account imbalance is the good graces of foreign central banks, we are on increasingly thin ice."