The American public may not know it, but the US economy would be up a steep creek without foreign lenders. They help to fund the federal government's deficit spending, projected to reach $475 billion, or 4.3 percent of economic output, next year.

Foreign investors buy Treasury bonds to allow the federal government to spend more than it collects in taxes, which President Bush and Congress have cut three times in three years. The sharp increase in war spending for the Iraq occupation has also increased the red ink.

Against that backdrop, Treasury Secretary John Snow recently traveled to Asia, where he did not persuade China's leaders to change the dollar-peg of the Chinese currency, the renminbi. A more expensive renminbi would boost the price of Chinese exports, and make US exports lower-priced by comparison.

Snow's trip to Asia was partly a ploy to publicly address the rising tide of unemployment in the American manufacturing sector. It has been in a job-loss mode since Bush arrived in Washington DC.

Some 44,000 US factory workers lost their jobs in August, according to data from the Labor Department. The national economy dropped a total of 93,000 jobs last month.

Moreover, workers who remain employed are being squeezed to produce more. The productivity of American workers rose at a 6.8 percent annual rate during the second quarter of 2003, the biggest jump in 15 months.

Finding paid work is not getting easier. US employers cut 170,000 jobs in the April-to-June period.

That is why Bush wants workers who vote to see him as taking bold action to reverse the nation's shrinking payrolls, especially in the industrial heartland. Cheap Chinese exports are easy to blame for America's job-loss economy.

Case in point is the president's remarks on Labor Day that US firms producing in America are hurting. He urged more market fairness for American manufacturers, but was mum on US firms producing in China and exporting to America.

As Snow and Bush learned, Chinese leadership has no reason to remove the renminbi's dollar-peg. That would raise the price of China's exports, slow growth, and increase unemployment.

Moreover, such a currency appreciation would also cut China's trade surplus with the US. With that surplus, China's central bank invests in US government bonds.

Apparently, Bush wants China to reduce its export earnings. But such a policy is creating the financial conditions to slash overseas investment flows to the US.

Foreign ownership of Treasury debt has risen from one-fifth in 1995 to one-third today, the Financial Times of September 8 reported, citing Merrill Lynch as a source. This is part of the backdrop to the sell-off in the US bond market that began in mid-June.

A front-page article in the same edition of the Financial Times looked at the chance that Asian investors might lose their enthusiasm for lending to the US. Indications of this shift could include "recent sharp falls in the price of US government debt."

Surely the rising federal deficit is making overseas investors queasy. Also making them nervous is the US trade deficit that requires annual borrowing of nearly $550 billion, or $1.5 billion each day.

The security of the dollar, the world's main currency, flows from the power of America's armed forces. But all the military strength in the world cannot hide the fact from foreign lenders that the US is piling up public and private debt at a fever pitch.

"At the current rate of borrowing, the net indebtedness of the United States will exceed the value of the stock market by 2018 and the combined value of the stock market and housing stock by 2032," economist Dean Baker recently wrote.

How much longer can the American economy keep going deeper into debt that is financed by foreigners? The answer to the question may arrive sooner than later.

One thing is certain. We have not heard the last word from the emerging "crisis of confidence" concerning foreign creditors and American debtors.

--Seth Sandronsky is a member of Sacramento Area Peace Action and co-editor of Because People Matter, Sacramento's progressive newspaper.