Earthbased:

The dollar weakening is because of the trade deficit and has been going on since the mid 90’s. You can only borrow from abroad for so long. There is a risk of increased inflation, but a weaker dollar makes US made goods cheaper for foreigners to buy. E.G. Cat selling many tractors overseas. So if internal spending is decreasing, increasing exports can help offset set this. This is why it is so important to not raise trade barriers which if done would raise unemployment and hence taxes. Plus inflation would rise. Remember the stagflation of the 70’s. Dems seem to want to take us back there. Long-term foreign investors are buying US stocks because they see great growth opportunities for US companies via exports; then when the dollar rebounds, they will sell and make a nice return.

The dollar’s exchange value is primarily determined by the value of the current account (i.e. trade deficit/surplus). So as they US trade deficit decreases the dollar will grow stronger. The debt itself can always be refinanced if investors believe in the stability of the dollar.

If an economy is growing and money is not injected into it, then money will become scarce and hence more expensive (i.e. interest rates and inflation). I should have used the term “slowing down” instead of contracting. When the economy eases, money growth must be slowed. If the economy is actually contracting, then it is better to pump money into it to get commerce going because deflation is even more dangerous.