Americans were alarmed last June as the price of oil raced toward $150 per barrel. Today, as the price falls toward $100, Americans feel relieved. They have forgotten that prior to the Bush regime's wars, the price of oil was $30 per barrel.

Similarly with the dollar. Despair ruled as the dollar fell to 1.6 to 1 euro. Now with the dollar's rise to 1.4 to 1 euro, relief bathes the markets. The fact that the dollar will never return to parity with the euro is out of sight and out of mind.

In declines, as in rises, speculation can run ahead of fundamentals. Just as speculators in oil futures markets can drive the price too high, currency speculators can drive a currency too low.

The dollar's problems are the enormous U.S. trade and budget deficits and the fact that there appears to be no way to close either. Offshoring of U.S. manufacturing and service jobs has enlarged the trade deficit while shrinking the domestic income tax base. In addition to its energy imports, the United States has large trade deficits in manufactures.

When inflation is properly measured, the U.S. economy has experienced little, if any, real economic growth in the 21st century. Yet, according to economist Joseph Stiglitz, the total cost of the Bush regime's wars in behalf of United States and Israeli hegemony is $3 trillion. Without a rapidly expanding economy, there are insufficient tax revenues to cover these costs.

The United States is dependent on foreigners to finance its $600 billion annual government budget deficit and its $800 billion annual trade deficit. The U.S. government relies on foreigners to recycle their $800 billion trade surplus dollars to buy U.S. Treasury bonds and mortgage debt.

Foreigners were becoming reluctant to continue the same rate of recycling. This reluctance contributed to the dollar's slide and to the worsening situation of Fannie Mae and Freddie Mac, which need to issue their own bonds in order to support their mortgage holdings.

The U.S. Treasury took steps to avert, or perhaps more accurately to push off into the future, a crisis. Foreign central banks agreed to purchase dollars so that low U.S. interest rates could persist through the November election. High interest rates now would make the mortgage crisis unmanageable.

To keep the recycling going, the U.S. Treasury took the mortgage giants under its wing in order to reassure foreign investors. According to a Sept. 8 Reuters report from Beijing, "China owned $376 billion of debt issued by U.S. government agencies, principally Fannie and Freddie, as of mid-2007."

If the Treasury's new relationship with Fannie and Freddie implies a guarantee of the bad mortgages as well as the bonds issued by the two companies, it is possible that the Treasury has put at risk its own ability to borrow.

The Treasury already has to borrow $600 billion a year to finance the operations of the U.S. government. How much in addition will the Treasury need to borrow, or co-sign, in order to keep the two companies afloat and to keep mortgages from defaulting?

The total could be greater than the U.S. Treasury's credibility.

It remains to be seen whether the Treasury has put troubled debt on the same footing as its own or brought trouble to Treasury bonds.

If the latter, America's superpower days are over, and the world will be spared the neocons' hegemonic wars.

To find out more about Paul Craig Roberts, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2008 CREATORS SYNDICATE INC.