It is easy to be pessimistic about American economy. The hard part is timing the downturn. The problem is well known from shorting on stock market: many companies are obviously overvalued, but can still rise up enough to wipe out the bear.

American economy was always, in a sense, a vampire. It attracted huge foreign investments and then defaulted cyclically. Americans have Las Vegas casinos, while the world has its own casino - America. The foreigners played on American stock market, railroads, junk bonds, currency, dotcoms - you name it. To call it "investment," even "speculative investment," is a misnomer: we're talking about high-stakes gambling. The money doesn't even fund the companies in IPOs, but mostly applies to the secondary - purely speculative - market. In the end, foreigners always lost their investments. The boom cycle seems to be about 30-40 years, and the last major crisis took place in the early 1970s, reverberating into the S&L crisis and the 1987 stock market crash.

Obviously, the three times increase in stock market indices since 1994 and up to five times increase in real estate valuations reflect a market boom. Such increases are unsustainable. The looming social security crisis when the baby boomers retire also assures an economic downturn.

The government attempts to cut down on taxes and welfare proved unsuccessful. America, as any democracy, continuously increases the allowances for its voters until the economic dead end. The government expenses rise continuously, almost always faster than GDP, and are resilient: the expenditures keep rising when GDP slows down.

The US dollar is overvalued as any brand-name item. For decades, it was the currency of choice for foreign governments, companies, and commoners. The US, accordingly, was able to issue staggering amounts of currency without the fear of being inundated by it: foreigners kept dollars as reserves and savings, and did not threaten the run on the American market. That situation is changing rapidly since late 1980s as US brokers appeal to previously passive investors. Foreign pension funds and governments seek higher profits by investing in America rather than simply maintaining cash reserves in US dollars. Japanese and the oil Arabs, untouched as yet by American economic crises (their riches accumulated after the 1970s US default), are especially active investors. Chinese government can always unload its massive dollar reserves onto the US market. The euro undermined the dollar as the major reserve currency. American financial sanctions against Iran also suggested the Muslims to switch to euro and Swiss francs. The dollar inflation is huge, about 390% from 1972.

Though the American dominance in the high-tech is unrivaled, it is actually not American. Only a relatively small educated class prospers from the high-tech. Another small number of denizens profits hugely from the Casino America, offering financial services to foreigners and hapless locals, both of whom lose consistently. The majority of Americans are employed in the industries which cannot compete with the foreign ones. That's why the American economy is disproportionally service-oriented: its industries went bankrupt. Scores of Mexican immigrants with no competitive skills weigh the American economy down. The similarity with Ancient Rome is striking. There, too, a small part of the economy was highly competitive while most citizens lived on the government handouts.

Though the US economy is relatively free from regulation, its most important aspect - wage - is heavily regulated. The minimum wage in America drives industrialists out of business. If the least skilled worker receives $8 per hour, then a much more skilled industrial worker expects three times as much, and entrepreneurs have to move their factories to China.

Outsourcing the high-tech jobs to places such as Israel and India presents little problem to America so far. No other country managed to develop the high-tech clusters: many companies working in the same area, venture capital, excellent universities, and attractiveness to highly qualified foreign workers. The problem comes from counterfeiting and reverse engineering the US products. Another critical factor is the demand for high-tech gadgets: recently, Microsoft encountered relatively sluggish sales of its Vista platform to existing Windows customers, as they are satisfied with their current OS and don't want to invest in switching. Manufacturers of hard goods are already familiar with this problem: Volvo is so reliable that many owners of old cars refuse to upgrade, and mobile phone users don't rush to replace their handsets with the newest devices. The market for high-tech improvements can be saturated.

The US "financial" (gambling) industry can be struck hard by the foreigners and small domestic investors becoming temporarily wary of speculative investment.

American economy is overleveraged: from sub-prime mortgages to resurging junk bonds. Many stock corporations have liquidity far below the market price of even the IPO valuations, and their investors are latent losers. The US economy is highly vulnerable to even small downturns. The government has long recognized that problem, and fights it with interventions, essentially absorbing the losers' debts and embezzlers' profits with taxpayers' money. From the New Deal semi-socialist programs which converted a short-term recovery into prolonged recession, to the giant S&L bailout, to the government-propped buyouts, such as the recent Bear Stern's, the government hides the losses from the public view to retain credibility and avoid its nightmare, the run on the US dollar. That's sort of what Enron officials were charged with.

The American economic ripples are a part of the worldwide crisis which has recently broke out in Japan, Malaysia, Great Britain, and other countries. The governments grew bigger, tax more, spend more, and regulate more. For decades, booming economy and the technological revolution provided a sufficient pace for worldwide GDP growth despite the opposing trend of growing governments. Still, the US disposable income grew by merely 1% a year for the last 35 years.

The current international income disparity is abnormal. In the late eighteenth century, English farmers lived not much better than freehold Chinese farmers. So the situation will slowly return to the historical norm. Abnormal profits are only made in monopolies: either regulatory or based on some other advantage. Now the US economy enjoys monopolistic advantage in the high-tech. The income trickles from the top earners down through the American society, but also the know-how and jobs trickle to other countries. America will prosper in absolute terms, but decline compared to other nations which develop faster. They are still unlikely to reach the American income, GDP, and budget figures for considerable time, but the gap is closing. Some countries can form the blocs which collectively exceed the US GDP.

The US Army is heading into a major trouble. It staked everything on the cutting-edge weapons but their costs increase faster than GDP, squeezing the budget. All other high-tech goodies become cheaper, but it's different with weapons where good is never enough, and the army always looks for the best. The law of marginal utility kicks in, and the costs of slightly better weapons skyrocket. The US Army, therefore, might not be so terrifying soon. Or, a major war might shake the excessive gadgets off, and the army would settle on good rather than hyper-advanced weapons.

For all its booms and busts, America will remain a wealthy and important country at least for decades, but its relative importance in international affairs will decline from the unsustainably high post-WWII level.