Those American athletes currently competing in Sydney have some friends among the world's investors. While the Olympics only happen every four years, foreign investors have been chanting "U.S.A. No.1!" for years.

The strength in the dollar is no small part of that. Friday's intervention in the euro may not seem like a big deal. And a shift in the dollar's positions might seem arcane.

But if the dollar does start to trend lower, every investor should pay attention. At a time when U.S. consumers' debt burden is at its highest since 1988, and the savings rate is negative, U.S. consumers have been relying on the stock market's solid returns to grow their assets.

Those returns are being boosted by overseas cash, which is chasing a strong dollar and the attractiveness of U.S. assets. This has carried stocks higher and kept interest rates at reasonable levels. A reversal of that fortune would make this year's tough investment climate even tougher.

European Invasion

That has potentially dangerous consequences for U.S. investors, who have been using the rate of returns garnered year-in, year-out in stocks as their savings. In addition, companies have been borrowing more debt than ever before to fund their activities, which include buying back their stock. The stock market is keeping these people sated, and the Europeans have been happy to fund those gains.

"Foreign investors have been large buyers of our stocks, and if they became disenchanted, and all else remained the same, that would create an excess supply of stocks to be held by someone," said Paul Kasriel, chief U.S. economist at

Northern Trust

. "That's going to imply a fall in U.S. stock prices."

Europe has been one of the biggest supporters of the U.S. stock market, both through investment in stocks and direct investment (taking a stake in U.S. corporations or buying them outright). They've been funneling money into the U.S. markets, while households and corporations in the U.S. have been net sellers, according to

Federal Reserve data through the second quarter.

In the second quarter of 2000, Europeans were net buyers of $106 billion of U.S. stock. That's after buying $246 billion in the first quarter, according to the Fed. Meanwhile, the U.S. household sector sold a net $421 billion in the second quarter. According to the

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Treasury Department

, Europeans were heavy buyers throughout the first quarter, slowed their purchases in April and May, but picked up again in June, the most recent month for which data are available.

"What we have really seen over last few months is not a euro story; it's much more a dollar story. The world is piling into U.S. equities," says Holger Schmieding, chief economist in Europe at

Merrill Lynch

. "Once the U.S. loses its attraction for equity inflows, the euro should rise for good."

Doomsday Isn't Today

Right now, that's nearly impossible to fathom. Intervention on a short-term basis won't change the current trend.

Longer term, we may find that intervention came at a prophetic time. The markets are starting to recognize evidence of a U.S. economic slowdown. Third-quarter earnings are being hit by a number of factors (including the euro), but chief among them is shrinking demand. If this persists, flows are going to work their way away from the U.S. markets.

If U.S. investors can no longer count on those returns, it's going to cut into consumer spending. No longer satisfied to allow stocks to act as the savings account, the average investor will cut back on spending, cut back on borrowing (which has also subsidized consumer spending) and the economy will go into retreat.

Flows wouldn't just come out of the stock market, either. They'd also come out of the bond market, and interest rates would rise in response to diminished demand for Treasuries. Higher interest rates constrain spending and business investment, which causes a continued slowdown.

That's the doomsday scenario. It's unlikely that a drastic situation will occur, where an utter crisis of confidence sends the U.S. economy reeling. The U.S. economy is a two-ton elephant that doesn't move on a dime, and predicting disaster for the U.S. has been a losing bet for quite some time. And in the short term, the euro will probably weaken again, until perception changes significantly.

But a significant effect is to be had if the world's perception of the U.S. markets changes. A flight of capital is going to make making money in the stock market a difficult endeavor.