From Chuck Butler, President of WorldMarkets at EverBank:

What Happened:

For a long time (before August 2007), the U.S. didn't have any problems attracting enough foreign investment.

What I Say:

This led people who should know better to say things like "deficits don't matter"... I've said this before, and I say it in all my presentations, that when I hear people say that, they remind me of the guy standing on top of the Empire State Building. He decides to jump off and as he passes the 56th floor he says, "so far... So good!"

But the ability to attract foreign investment to finance the deficit came to an abrupt halt last August. The sub-prime meltdown hit the streets leading to a liquidity and credit crunch.

The credit crunch led to a drying up of the Corporate Bond and Commercial Paper issuance, which is exactly what foreigners loved to buy because those vehicles normally had a nice "spread" over U.S. Treasuries and stocks...

Here's what I think is beginning to happen: The U.S. has done a great job of pulling the wool over everyone's eyes, including foreigners.

The U.S. keeps telling anyone who will listen that "everything is beautiful" and all is "right in the world." The mortgage bill has passed and that's the end of all the misery, folks!"

That's what government officials want everyone to believe. And right now, everyone is taking the bait, hook, line and sinker! That's leading to U.S. stock market strength, which is probably being fueled by foreign investment, and that's all good for the dollar.

This could work... In 1995, the dollar had been sold for 10-years, and the fundamentals weren't anything to get excited about, but a guy by the name of Robert Rubin, then U.S. Treasury Sec., began a campaign to "prop up the dollar."

He insisted that a "strong dollar is in the best interest of the U.S." He didn't use the weak kneed, yellow bellied, Treasury Sec. Paulson's line that goes: "The U.S. believes in a strong dollar policy, but wants the Chinese to allow their currency to get stronger vs. the dollar" stuff!

Rubin's campaign worked, and before you knew it, investment money flowed into the U.S. like a tidal wave. We had the best dollar buying in seven years.

Of course old "Bubbles" Greenspan had a lot to say about that with his insistence to target interest rates to help the stock market. Remember what people said then. They said the "Greenspan Put" would bailout stocks, so the markets traded with the perception that there was no risk.

So, I guess the question now is: Will the campaign to pull the wool over the market's eyes here in the U.S. work again? So far, the answer is yes, it's working.

But, what happens if someone balks? What happens if another bank is taken over by the FDIC, or financial institution has to be bailed out by the Fed again? Well, then the rot on the vine will be exposed, and all this dollar buying will get reversed...