Investors can now see through the Americans’ game. Since 2000, the US has been playing a big game of IOU with the rest of the world. They spend more than they save, and they’re asking us to bridge the gap.

On the day the Irish media was focused on the consummation of the Fianna Fail/Green Party marriage, an event of considerably more importance for this country received little coverage. Yet this event is likely to have more significant and longer-lasting ramifications for us than anything this new government gets up to.

On June 15, the US government was given two fingers, not by a bunch of internationalist lefties, but by its main supporters, the international financial community.

The US treasury tried to sell new US ten-year treasury bills worth $8 billion to plug the gap between what Americans spend and what Americans save. For the first time ever, foreigners said: ‘‘No thanks.”

In doing so, foreign investors kicked off a process that has left the financial markets and the dollar in a tizzy. By taking up only 10 per cent of what the US government was trying to sell, investors have screamed: ‘‘The emperor has no clothes!”

They are beginning to see through the Americans’ game. Since the beginning of the century, the US has been playing a big game of IOU with the rest of the world.

Americans have been spending more than they are saving, and are asking the rest of the world to pay for the gap. In return, the US gives us a piece of paper which states that the American government will pay us back in 30 years.

For these pieces of paper to hold their value, the US should now be reining in spending, to send a signal to the creditors that it is over the hump and will now be a good boy and stop buying all those SUVs with other people’s cash.

But the US has done precisely the opposite. It has continued issuing pieces of paper in return for real money. This scam is only a problem if foreigners lose confidence in the US’s ability to pay – or in the US’s bona fides.

Up to now, the world has taken the Americans at their word. But that has now changed and the financial markets are getting fed up with the flood of paper promises coming out of the US.

Investors are now saying that they will only finance the US if either (a) the dollar falls dramatically before – not after – they lend money to the Yanks or (b) the rate of interest the Americans are prepared to pay rises considerably.

Both demands are bad for the US, which stopped making stuff a long time ago and now is a nation that buys and sells houses to each other, using other people’s money.

If the rate of interest has to rise, then the American housing market – which is already feeble – will be further weakened.

We are aware that the sub-prime mortgage market in the US is a mess. Any further rate rises and there will be a real risk of contagion in the swankier parts of the American housing market.

All this nervousness has an impact on US spending because the average man’s willingness to put his hand in his pocket is a function of, among other things, the equity in his house.

As the wealth effect associated with the housing market diminishes, American main street spending will also fall.

This traditionally is bad news for the rest of the world, and particularly for a trading nation like Ireland, because the Americans are our greatest trading partners.

(In recent years, research has disputed the influence of the US on the rest of the world. For example, an article in the latest IMF World Economic Outlook argues that the world today might not be as prone to catching a cold when America sneezes. Time will tell. Visit if you are into that type of stuff.)

What would be unambiguously bad news for Ireland is if the yawning gap between American spending and saving led to a run on the dollar, as many in the financial markets expect. This would make Irish costs look ridiculously high at a time when US multinationals are looking around the globe for places to invest.

Recently, I visited China. If anyone still doubts the impact that this giant will have on manufacturing businesses around the world, a day in Shanghai will leave you with no illusions. Not only is China capable of producing labour-intensive, low rent stuff, but in the high-tech sector, it is on the move.

Every major manufacturing brand is there, and the economic model for the future must be ‘‘make stuff in China, brand it in the US, sell it in Europe and America’’. Nothing else makes sense for a global manufacturer.

Sitting in the Blarney Stone pub in Shanghai, I got chatting to a bloke from Dublin who was a quantity surveyor.

Over pints, he told me that he had been based in the US for a few years but was now overseeing the building of the largest Intel plant in the world which the US multinational was about to build in Dalian, a city in northern China (where many of our immigrants come from).

Intel sees the opportunity in China and, at $200 a month for a highly-skilled technician, it is not hard to see how Leixlip or any other Intel ‘‘fab’’ might begin, over time, to look like an indulgence.

If the dollar were to fall, that indulgence might become intolerable. The same equation is being worked out in every corporate headquarters around the globe.

Now let’s get back to theUS and its financing needs. The world looks like it is going to be divided between countries that make hard stuff and countries that make paper money. The English-speaking world is in danger of being that part of the world that issues IOUs and prints paper money to pay for it.

Think about Ireland. In 2000,we had a healthy balance of payments surplus. We were saving much more than we were spending. This year, we are on course to have a deficit of close to 5 per cent of our GDP. We are borrowing close to €10 billion to plug the gap.

Just like the Americans, we are involving ourselves in a confidence trick. But unlike the Americans, who can and will devalue their currency to inflate their way out of debt, we, as inhabitants of the eurozone, do not have that option.

The only way we can pay for ourselves is by regaining competitiveness the old-fashioned way – via a long, painful recession characterised by levels of unemployment that many of today’s workforce have never experienced.

Now that the financial markets have wised up to the US game, how long before the markets focus the attention of the corporate world on the similar antics of America’s little cousin across the Atlantic?

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