The Unbearable Costs of Empire: "Then there's the problem of the U.S. –- both the government and the private sector –- borrowing from foreign countries. Most government borrowing is now being financed from overseas -- especially the central banks of China, Japan, and other countries. These institutions are deliberately buying dollars in order to keep their currencies from rising against the greenback. But they won't keep doing this indefinitely. The U.S. is borrowing more than $600 billion a year from the rest of the world, and it can't go on much longer.

"THE BIG BANG. Sometime within a decade, and most likely in the next couple of years, foreign investors will see that a steep decline of the dollar is unavoidable and will begin to unload them and U.S. Treasury securities. As with any bubble, it will be better if this one bursts sooner rather than later, when it would be even bigger. But adjustment and pain will still occur, including higher interest rates and consequently slower growth.

"Slower growth will also mean larger federal budget deficits. And one event that will certainly slow growth and increase federal government borrowing well beyond current projections is the bursting of the housing bubble. Housing prices have seen an unprecedented run-up since 1995 of more than 35 percentage points above the rate of inflation. That has created more than $3 trillion in paper wealth that –- just like the illusory wealth of the stock-market bubble -- is programmed to disappear. This, too, is almost certain to happen in the next few years."

The Unbearable Costs of Empire: "Then there's the problem of the U.S. –- both the government and the private sector –- borrowing from foreign countries. Most government borrowing is now being financed from overseas -- especially the central banks of China, Japan, and other countries. These institutions are deliberately buying dollars in order to keep their currencies from rising against the greenback. But they won't keep doing this indefinitely. The U.S. is borrowing more than $600 billion a year from the rest of the world, and it can't go on much longer.

"THE BIG BANG. Sometime within a decade, and most likely in the next couple of years, foreign investors will see that a steep decline of the dollar is unavoidable and will begin to unload them and U.S. Treasury securities. As with any bubble, it will be better if this one bursts sooner rather than later, when it would be even bigger. But adjustment and pain will still occur, including higher interest rates and consequently slower growth.

"Slower growth will also mean larger federal budget deficits. And one event that will certainly slow growth and increase federal government borrowing well beyond current projections is the bursting of the housing bubble. Housing prices have seen an unprecedented run-up since 1995 of more than 35 percentage points above the rate of inflation. That has created more than $3 trillion in paper wealth that –- just like the illusory wealth of the stock-market bubble -- is programmed to disappear. This, too, is almost certain to happen in the next few years."