The Motley Fool has posted a two-part analysis of what they see as the "Impending Destruction of the US Economy." The salient points in Part One of the report appear to be:

* Current US deficit is $800 billion a year.

* Foreign investors (with whom this deficit is held), will lose value for money as the dollar falls, as it has been doing for the past year or so.

* This means that to keep foreign investors happy (ie to keep them investing), the Federal Reserve will need to increase interest rates.

* The housing and retail markets are already stretched and require lower interest rates to prevent foreclosures and a credit market freeze.

The way I see it, if it is a choice between foreign investors and the American public, of course the government wants to support the public. People are not going to change their credit-driven lifestyles or stop shopping for the holidays, so what are the options?

1. A rise in interest rates would only increase the pressure on the average American who is already up to his ears in debt and unable to sustain more payments (foreclosures, greater debt, and recession).

Credit card debt alone was at $753 billion in 2005. Today, the total consumer debt is around $10 trillion. $10 trillion divided by the number of households or 300 million people is equal to $33,333 per capita — and increasing — thanks to subprime mortgages, continuing credit accumulation, and dubious schemes.

2. A drop in interest rates would protect the consumer, but would not help the foreign investors.

The argument made here is that countries with large dollar holdings will not dump them at the risk of crashing their own economy, but many of them are no longer accepting any more dollars or buying any more Federal Treasury Bonds (in September 2007, the net sales of Treasury Bonds was negative, for the first time in history).

Instead they are setting up sovereign funds to buy up real assets. All they need to do is sit tight on the Bonds they already have and wait for them to mature. At maturity, the US has the option to either cash in the Bonds or alternately default them - and neither option will be good for the dollar or the economy.

The last drop in interest rates of 0.25% lead to the biggest weekly decline in the US stock market. "A recession is in the works,'' Andy Engel, who helps run the $1.81 billion Leuthold Core Investment Fund that has outperformed 97 percent of its peers this year, said from Minneapolis. "You're seeing definitely the impact from the crisis in the credit industry. But we're also seeing that spread into other areas.''

Still, the drop in interest was not enough.

3. Financial speculation and dubious financial planning?

Mr. Kuttner, in his new book, The Squandering of America, describes how a very small fraction of the very rich is harvesting the largest chunk of winnings from the market. Not only is this leading to a widening of the gap between the rich and poor, but as their wealth goes abroad in the form of outsourced jobs and investments, it is also increasing unemployment and consumer debt in the US. In the last few years, the economy has shifted from projected surplus to infinite deficits while the prospect of a crash grows increasingly closer.