It found that foreign direct investment, or FDI, into sluggish "Old Europe" had slumped last year, while it had soared by 70 percent in the 10 new member states of the European Union, mostly those of central and Eastern Europe. These new Europeans have seen total foreign investment into their booming economies grow by 500 percent in the past decade.

Investment into the EU as a whole fell by over a third to $216 billion. Investment into 'Old Europe,' which means the EU's first 15 member states of Western Europe, dropped by 40 percent to $196 billion. But this understates the degree to which France, Italy and Germany suffered.

Investment into Britain rose sharply, and put Britain into the second place globally for FDI, ahead of China. That is itself speaks volumes for the bets investors make - reckoning they will get a better return from the mature British economy of 60 million people than from big and booming China.

Investment is not a bad measure of overall economic vibrancy. Investors generally like to bet on what they see as a good thing, which means countries that are growing economically, that represent a safe haven for their funds and enjoy political stability. The EU has traditionally been a reliable place to invest money - but fewer and fewer people are willing to bet on the German, Italian and French economies.

These figures, like most statistics, should not be taken wholly at face value. The British total has been somewhat swollen by the $16 billion takeover of the Abbey National bank and mortgage group by Spain's Santander Central Hispano bank and the $9 billion purchase of the Amersham medical imaging group by GE. And Luxembourg, which comes in 4th in the global investment stakes after the United States, Britain and China, is essentially an investment vehicle.

In fact, with its population of less than 600,000 people, it can be seen essentially a giant bank disguised as a country. It received almost $60 billion last year and exported over $50 billion, and received $90 billion the year before, and exported almost $100 billion.

These quirks aside, these flows of global investment funds are interesting guides to the real shifts of financial power and economic prospects in the world. They should be treated with some caution. Many people assume that investment into China is flowing so fast that it must boast one of the world's greatest accumulations of foreign funds. Not quite; there is more U.S. investment capital in tiny Ireland, population less than 5 million, than in massive China, population 1,300 million.

So what is fascinating is that once again, the U.S. is the world's most favored place for foreign investors, drawing in almost $100 billion.

This is not, it must be stressed, the sum total of foreign funds flowing into the U.S. The total for investment as listed in the UNCTAD report, does not include the way the Asian Central Banks, specifically the Bank of Japan and the Central Bank of China, are buying U.S. Treasury bonds almost as fast as they can.

The latest figures from the Bank of International settlements in Basle, which the central bank for the world's central bankers, claim that Japan's bank holds $850 billion and China's holds $800 billion in U.S. dollars and securities. China alone is covering 40 percent of this year's U.S. trade deficit.

A new report from the prestigious Council on Foreign Relations in New York says the combination of the alarmingly high federal budget deficit with the trade deficit is becoming a serious threat to the U.S. position in the world. The budget deficit, officially running at around $350 billion this year, is likely to swell to some $600 billion with the new funds heading the rebuild the hurricane battered Gulf Coast, and the expected supplemental Pentagon budgets for the military operations in Iraq and Afghanistan.

"Failure to take the initiative to reduce the twin deficits will cede to foreign governments increasing influence over the nation's fate. Perhaps equally alarming, it will lead to slower growth, escalating trade friction, and reduced American influence in political and economic spheres," the report says.

The report, 'Getting Serious About the Twin Deficits,' is written by Professor Menzie Chinn, of the University of Wisconsin at Madison, who served as a senior economist for international financial issues on the president's Council of Economic Advisers during the Clinton administration, and before that for the first President Bush.

The trade deficit (formally known to economists as the current account deficit, has risen from just under 3.8 percent of GDP in 2001 when the Bush administration took office to 5.7 percent last year. It has been worsened by the rise in the oil price - 40 percent of the increase in the trade deficit since the end of 2001 is accounted for by increased oil imports.

The report warns that "foreign governments and private investors, confronted with an endless vista of U.S. budget deficits, will tire of accumulating Treasury securities. Borrowing costs for the Treasury would then rise significantly and the dollar would fall sharply. The economy would slow dramatically, driven indirectly by a slump in the housing market or directly through falling private consumption."

Even if the U.S. avoids a collapse of the dollar and an economic recession, the report claims that America's deepening plunge into debt threatens an important source of its influence: the dollar's role as the main global currency.

"A cautionary note regarding America's current path is provided by Britain's loss of military and political primacy in the twentieth century; that development followed a shift from creditor to debtor status. Similarly, a prolonged decline in the dollar's value and increasing indebtedness will erode America's dominance in political and security spheres," Chinn writes.

The report calls for an end to the Bush administration's tax cuts, and slashing planned spending in the recent energy and transportation bills, and argues that "energy demand management - either through the imposition of energy taxes or meaningful fuel efficiency standards - is the only realistic option." It also calls for an orderly devaluation of the dollar, coordinated with the Asian and European central banks.

"The worrying alternative to modest and coordinated dollar depreciation now is investor panic and a major dollar collapse down the road," warns this report from the heart of the U.S. foreign policy establishment.

And yet remember the UNTAD report. The foreigners keep on investing their money into the U.S., the only giant economy that continues to grow at a healthy rate of around 4 percent a year. The Chinese and Japanese central banks seem to have steeled themselves to the prospect of a continuing fall in the dollar, although it could cost them dearly in currency exchange losses. Looking at the alternatives to the U.S. the world's investors seem to have concluded they have no place else to go, except perhaps Britain and Eastern Europe.

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