Today’s news is all about the passing of the $700 billion financial sector bailout. But questions remain. Will it be enough? Is it too much? Who gets stuck with the bill?   It’s a topic everybody is talking about, from the White House to Wall Street, and to the barbershops on Main Street. But nobody seems to be talking about the big elephant in the room—the $3 trillion in foreign debt already on the books.

That money has flowed through the system, much of it into home mortgages, and the real question is how much of the $3 trillion is going to go bad?  Even with the bailout, that makes the U.S. economic future look grim.

The country has been living on borrowed money for an entire generation; this debt has been serviced internally by a mushrooming but shaky financial services sector, and externally by foreign governments (especially the Chinese); and now both of these sources are evaporating. Even with the bailout package, the U.S. economy and American consumers are going to take a big hit.

The U.S. government is in no position to rescue bankrupt companies, because the government itself bankrupt. The root cause has been misguided enabling—the financial industry has enabled consumers to spend themselves into a debt abyss and foreign governments have enabled the U.S. government to spend more than it brings in, by buying up U.S. debt. Foreigners now own more than half of all U.S. debt, compared to just 5 percent 20 years ago.

Foreign governments and banks are increasingly alarmed about the U.S. economy, which is why they’ve already started shifting investments to other countries and to other currencies—particularly the euro, which has a negative impact on the value of the dollar.

The $700 billion bailout will only scratch the surface of our debt woes. The economy cannot continue to grow, based on borrowing against the future. The domestic financial pot is empty and our foreign enablers are taking notice.

Business Week captures what’s at stake in: Shared Sacrifice Will Ease the Credit Crunch: Foreign lenders will have to take a haircut while American consumers spend less and taxpayers take a hit.

Here’s a brief excerpt:
It's unseemly for the world's richest country to refuse to pay some of its debts. That's especially true since much of the money came from poorer countries such as China. In the worst case, the losses by foreign investors would lead to an unwillingness to invest in the U.S. while fueling anti-American sentiment around the world.

You can read the entire article here