NEW YORK (CNN/Money) - The dollar fell to a two-year low against the euro Thursday, leaving some analysts and investors wondering if we're in a nasty downward cycle for the U.S. currency.

While most economists think that isn't the case, clearly there are reasons to worry.

Start with the trade deficit, a record $36 billion in April, as imports jumped nearly 5 percent. That's not as bad as it seems, because about half the increase in imports can be attributed to the $3.30 surge in oil prices, the biggest one-month jump in nearly 12 years. But also hitting record levels were imports of autos and auto parts, and consumer goods like TVs, toys and clothes.

Remember, the trade balance is the difference between what we "buy" from overseas (the imports) and what we "sell" (exports). We have had an ever-widening trade deficit for most of the past 12 years because our economy has been healthy, consumers have been spending, and a strong dollar has made imports pretty affordable.

As the economy goes from last year's (mild) recession to this year's (mild) recovery, economists say we can expect the trade gap to keep growing. In fact, in the May budget report from the government, a somewhat obscure item suggests we can expect another increase in imports in the next report: Customs duties rose by nearly 20 percent in May, a month when they usually fall.

What is the "problem" with a growing trade deficit? As we buy more and more from the rest of the world, our dollars pile up overseas. As long as overseas investors like to invest in U.S. stocks and bonds and real estate, there's no problem because those dollars come right back.

But what happens if overseas investors increasingly choose to put their money in Europe and Asia? Then they'd have to sell dollars to buy euro and yen, and that means a weaker dollar.

And if you're an investor in U.S. stocks and bonds and losing money, you might sell more of your dollars and/or stocks and bonds. You get the idea of how this could become a downward cycle. Not good.

In fact, what we saw in the first quarter of the year highlighted those fears. The current account, which is a broader measure of the trade balance because it includes financial flows like income on investments and government transfers, hit a record at just over $112 billion.

Overseas net purchases of U.S. stocks fell to $25 billion from $33 billion in the fourth quarter. Net purchases of corporate and other bonds (just about everything but government bonds) fell to $45.4 billion from $66.3 billion. As for U.S. Treasury bonds, there were net sales of $5.7 billion versus net purchases of $27.2 billion.

All this explains the dollar's slide, and further declines could get us into that nasty downward spiral alluded to above.

But all that may not be a problem in the long term. A falling dollar at some point makes our exports cheaper to overseas consumers and makes imports pricier. So maybe at least on the margin we won't buy as many foreign-made goods. And as stocks keep falling, they will at some point be extra cheap to overseas investors whose currencies have gone up in value against the dollar -- so they might start buying again.

That's the economic argument.

Problem is, right now the domestic terror threat, along with global instability, are also weighing on the dollar and the U.S. stock market.

One beneficiary of the troubled world we live in has been the U.S. government bond market because there has been some "flight to quality" as investors of all kinds look for a safe haven. The drop in the benchmark 10-year note to about 4.75 percent has helped pull mortgage rates down sharply, and that has helped boost mortgage refinancings again. That is another tonic for the economy because it gives consumers more money and maybe more confidence.

Kathleen Hays co-anchors Money & Markets, airing Monday to Friday on CNNfn, and appears throughout the day reporting on the economy and how it affects financial markets. As part of CNN's Business News team, she is also a regular contributor to Lou Dobbs Moneyline.