When the big boys get knocked out, they go down with a thud. If China and Japan were to stop supporting the U.S. dollar, the dollar would crash to the mat like the biggest heavyweight boxer ever.

But China and Japan are America’s friends, you might say. At least, they aren’t enemies any more, right? After all, they hold more than $930 billion in U.S. government debt and are now among America‘s largest financers. Besides, it is in their best economic interests to keep supporting the dollar, isn’t it?

Yes, many economists feel that China and Japan have a symbiotic relationship with the United States and that it is in their best interest to support the dollar—and up to now, they have been right. Countries like Japan and China, which sell goods to the U.S., benefit when the U.S. has a strong currency because a strong dollar means that Americans can purchase more foreign goods. It also means that the people in those foreign countries are less likely to purchase things made in America because they can buy them cheaper at home, thus helping their local economies.

While European and Japanese consumers have been faced with poorer economies over the past several years, they have cut back on spending and have increased their savings. Consequently, free-spending Americans have become the consumers of choice for many of the world’s exporting nations.

This has led exporting nations to use the profits earned by selling to Americans to purchase U.S. government Treasuries and bonds to keep the dollar strong—and thus keep Americans buying their products. Americans have been satisfied with this relationship too, because a strong dollar means they can buy more cheap foreign imports.

Thus the cycle continues: Americans buying cheap foreign goods, and those foreign nations using their profits to purchase U.S. Treasuries to prop up the dollar.

But this relationship has led to structural problems in the U.S. economy. Easy borrowing from foreigners, who have been only too happy to lend the money necessary to keep the dollar strong, has in part led to huge national debts and an overvalued dollar.

Since 2000, the national debt has risen by an astonishing 48 percent, while the amount of U.S. public debt held by foreigners has climbed by an even more astonishing 100 percent. The amount of U.S. debt that is held by China alone has gone from $60 billion to over $262 billion. American debt held by Japan has grown from $317 billion in 2000 to over $668 billion today.

As if an overvalued dollar and massive debts were not bad enough, there looks like there might be worse news: China and Japan may no longer need the U.S.

On March 20, the Wall Street Journal reported on an important shift taking place in the global economy: “In a trend that has caught many economists by surprise, companies and consumers in the euro zone and Japan, the world’s second- and third-largest economies after the U.S., have started spending again … for the first time in years.”

The wsj went on to say that “the re-emergence of spending in those nations has implications far beyond financial markets. For one thing, it means that the world might be less dependent on the American consumer, whose willingness to borrow and spend has been a primary driver of world growth for the past five years.”

But it is not just the Japanese and European consumers that are starting to spend; the Chinese may be waking up too. Wal-Mart is seeking to hire 150,000 employees in China over the next five years, quintupling its current employee base in China.

If these trends pan out, they could cause the dollar to significantly weaken.

European and Asian consumption replacing that of the U.S. could have huge implications for Americans, because if China, Japan and other exporting countries are no longer dependent on the U.S. consumer to purchase their goods, they will no longer need to buy U.S. Treasuries to prop up the dollar.

For Japan, China and other exporting countries, higher consumer demand internally and from Europe could not have come at a better time, because there are increasing signs that consumer demand within the U.S. may be topped out.

A recent Commerce Department report confirmed what many Americans have recently found out: The housing market is cooling. Sales of new homes plunged in February by 10.5 percent—the biggest drop in almost nine years. The median price for a new home dropped by 1.6 percent—and 2.9 percent when compared to February last year. On the West Coast, figures showed almost a 30 percent drop in sales from the previous month. The report also highlighted the fact that nationally, unsold home inventories also set a new record (msnbc, March 24).

This is not good news since over the last few years, America’s housing boom has accounted for about 40 percent of all new jobs created in the private sector. Additionally, cash-out refinancing has provided much of the nation’s consumer spending. If housing slows, so does consumer spending and so will demand for foreign imports.

Intelligence agency Stratfor agrees that America may be in for “a period of a weaker U.S. dollar” due to reduced dollar support from Japan (March 27). With growth inside Japan picking up, the Bank of Japan announced March 9 that it will end its policy of “easy money” which has kept interest rates near zero for almost 10 years.

Higher interest rates in Japan could be very detrimental to the dollar because they could destroy what is called the “yen carry trade.” Economic analyst Paul Van Eeden says the yen carry trade has kept the dollar strong because large investors “borrow yen at very low interest rates and invest those funds in higher yielding instruments such as U.S. Treasuries. In the process, yen are sold and dollars are bought” (www.paulvaneeden.com,March 6). While the investors make money from the interest rate differential, it also has the side effect of keeping the yen value relatively low and the dollar stronger. In other words, the yen carry trade has been propping up the dollar.

The Asian Development Bank (adb) is also worried about the U.S. dollar and imbalances resulting from rising interest rates, warning that “East Asian economies need to be prepared for a possible ‘collapse’ of the dollar” and that in the event of a dollar drop they should work together to allow their currencies to collectively appreciate against a tumbling dollar so as to spread out the cost of adjustment (The Hindu,March 29).

In highlighting the fact that the East Asian economies need to work together, the adb has underlined the real fear—the fear that individual countries in dumping their depreciating dollars could create a snowball effect where other countries would rush to unload their dollar reserves before they devalued further.

The question remains, how long will Japan and China continue to support the U.S. dollar? Each day they do, they add more dollars to their already massive dollar holdings. Demand for goods in America seems to be slowing, while European and Asian internal demand seems to be growing.

One day soon, foreign nations will not have the motivation to support the dollar and America’s massive deficits, because to do so simply will not benefit them any longer.

When that day comes, it will come as a giant knockout blow for the dollar, and the U.S. economy will crash to the mat like a heavyweight has-been.