With the dollar declining sharply, many are focused on the issue now. And the most common culprit for blame seems to be the federal debt. While I agree the dollar is likely to fall, the deficit doesn’t seem like the main reason, to me. The federal debt is large and growing quickly, which is a problem. But still the USA federal debt to GDP is lower than the OECD average. Even with a few more years of crazy federal debt growth the USA will still be below that average.
Japan has by far the highest level of government debt in the OECD. The Yen is not collapsing. The debt is a factor but the lack of saving (USA consuming more than it produces) seems the biggest problem to me. China not only does not have large government debt it has large amounts of personal savings. People have been living far within their means in Japan and China (only by government intervention, due to desires to not have the currency appreciate has that appreciation been slowed).
Thankfully we have been increasing savings a bit recently but it is a drop in the bucket so far (Consumer Debt Down Over $100 Billion So Far in 2009). It will have to increase in size and continue for years to begin to address the problems in a significant way.