HONG KONG: A specter is beginning to haunt those in Asian governments and central banks who take lessons from history. Are Asia's reserve assets, in which it takes such pride, secure?

Faced with unsustainable, unserviceable debt levels, most countries, like most corporations, default. But those too powerful or too big to fail may prefer to change the rules.

U.S. foreign debt is not giving Alan Greenspan sleepless nights. He clearly believes the combination of Asian savings, the reserve role of the dollar and the ingenuity of Wall Street can continue to fund external deficits of more than $300 billion a year. But all financial systems rest on confidence both in technical sustainability and the political will to sacrifice other considerations to maintain that stability. On both counts, worries are growing for Asia.

U.S. liabilities now exceed assets by around $3 trillion. U.S. direct and equity investments overseas are still slightly greater than foreign ownership of U.S. businesses, equities and real estate. But foreigners hold more than a net $3 trillion of U.S. debt, mostly bonds issued by the U.S. government, agencies and corporations. Most of that is owned in Asia. Debt is always at risk from default, inflation or renegotiation. Direct and equity investment - in which Europe predominates - is less vulnerable.

The U.S. deficit has been growing for so long that cries of "wolf" now fall on deaf ears. But could this year's likely current account shortfall of more than $500 billion be the final straw? No one knows, but the dollar's weakness has raised warning flags.

Meanwhile confidence in U.S. political will to sustain a system based on a sound dollar and free trade principles may be eroding. The persistence of unemployment despite economic growth, the emergence of outsourcing as an issue and the impact of John Edwards' job-focused campaign for the Democratic presidential nomination suggest there are doubts in America about a system which has promoted U.S. consumption but raised debt levels to unprecedented levels and, arguably, failed to deliver jobs.

Which is where history kicks in. A key element of President Franklin D. Roosevelt's New Deal to combat the Depression was effective debt reduction achieved by devaluing the dollar against gold, nationalizing private gold holdings and disallowing debt obligations expressed in gold. That may have been good economic policy, but underlined official willingness to put broader - and electoral - interests ahead of contract principles.

Likewise in 1971, President Richard Nixon, faced with the consequences of Vietnam "guns and butter" spending, tore up the Bretton Woods system by ending the convertibility of dollars into gold.

Even assuming that the U.S. deficit can, via a mix of currency changes, higher savings and faster global growth, be brought down to a sustainable level, there will be an issue of the accumulated debt overhang. Any serious Asian attempts at asset diversification - Asian countries now hold at least 70 percent of their reserves in dollars - would create a dollar crisis. If Asian countries traded their bonds for other U.S. assets, bond yields would soar, causing another kind of crisis. For Asians to import more would not help unless it was from the United States.

So, will the United States eventually have to link use of those reserves to specific additional purchases of U.S. goods and services? Will Asian mercantilists find that payback time has come for their rigged exchange rates and nontariff trade barriers?

The bottom line is that Asian bondholders are uniquely vulnerable to any changes in U.S. rules designed, however unfairly, to protect the American economy from the consequences of debt. The lack of a sufficient alternative to the dollar puts the United States in a strong position. In the 1960s, Britain suffered from the overhang of the sterling area - creditors such as Hong Kong had to be given guarantees against devaluation. The United States has no such constraints. It could place controls on central bank use of U.S. Treasuries, as it did on sales of gold in 1971.

Meanwhile Asian central banks have a smaller nightmare. If their currencies are revalued, their own losses will be enormous - their assets are in dollars, their liabilities are in local currency. That may seem an accounting technicality, but it is another illustration of the problems created by America's reckless willingness to borrow and Asia's willingness to buy debt without looking at the small print of history.