US has been continuously running on high budget deficits and it has been funding it through the investments made by trade surplus countries, into it. Till last year Japan was the largest investor into US treasury bonds, and China has now taken over with over 1.5 trillion dollars worth of investments into US treasury.

There are also scores of other countries like Saudi Arabia, India and South Korea who have invested their foreign exchange surplus into US treasury bonds. These countries were feeling safe till recently when the US economy was not doing badly. But the signs in the last few months , especially the collapse of the Lehman Brothers, and also the big dent in the US financial system, have made these countries sit back and think about their huge investments into a weak country.

Now they are likely to avoid further investments into US and that can lead to bigger trouble for US economy because it will not have money to fund its budget deficit and it might be forced to go for new currency printing, which might result in more economic problems.  And for the sake of it, the US government has confidently said that all the investments by its friendly countries into US bonds, are very safe.