US: the world's deepest debtor

[Say_What]

<clips>

ONE of the curious features of US hegemony is that it depends on the apparently limitless willingness of US allies - and even of some future competitors, such as China - to finance the apparently limit less budget and trade deficits of the US. Over the past 20 years the US has become the world's leading debtor, its net foreign debt rising from $250bn in 1982 to $2.2 trillion in 2001, 23% of GDP - almost equal to the $2.5 trillion owed by five billion people in the whole of the developing world.

Thanks to President George Bush's $600bn budget deficit (although he actually inherited a surplus from Bill Clinton), a persistent trade deficit with Asia and near zero savings rates, US net debt is growing, requiring daily inflows of billions of foreign-sourced dollars to cover the difference. These public and private flows are invested in sovereign debt instruments or the equity markets. As the US Federal Reserve noted in its latest quarterly report, foreigners now own 38% of US Treasury securities, more than twice the amount a decade ago.

This means that the US has mobilised an ever-greater share of world savings to finance US consumption, economic growth, living standards and military expansion. Most of those savings are from East Asia. Japan, China, the newly-industrialised countries and middle-income countries, such as Thailand, have accumulated vast resources that are not locally consumed or used for productive purposes but invested in dollar paper assets. Flows into these assets keep US interest rates low and boost the value of the dollar, allowing the US to import cheaply from the rest of the world. East Asia finances US debt in return for continued unrestricted access to the US market. This arrangement suits Asian exporters but inhibits the use of resources in other ways.

The mutual dependency was built up during the cold war and is underpinned by the strategic bonds between the US and its main Asian allies. Despite intensified regional integration, the developed and developing countries of East Asia still depend heavily on the US market to maintain their export, hence their growth momentum. Despite talk by nationalist politicians of withdrawing from dollar assets, Japan and the other East Asian allies of the US have never really challenged the arrangement.

http://mondediplo.com/2003/10/09debt

[saigon68]

1. None of this passes the smell test.

Their own people living in cardboard shacks. The rich of these countries invest their capital in U.S. treasury notes. Unbelievable.

[zonmoy]

4. That is because

they know that the people of the us will soon become just as poor as their people in cardboard boxes.

[TahitiNut]

2. Not LBN.

Probably best characterized as an Op/Ed opinion piece, this article is also nearly 2 weeks old. I'm moving it to the Editorials and Other Articles forum where, hopefully, it will attract the discussion it deserves.

Thank you for your understanding and ooperation,
TahitiNut - DU moderator

[iam]

3. Don't ever ask Americans to sacrifice..

Every politician since Jimmy Carter has willingly sacrificed our collective future for the pleasure of instant gratification and materialistic consumerism. After the bottom falls out, conservatives will yell "it's Clinton's fault!". After pouring trillions down the drain on prohibition, military expansionism and tax cuts for the wealthy.

[beyurslf]

5. WOuldn't it be nice

to spend only 3.5% percent more than what you make every year and call it good because it wasn't more than 6%?