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U.S. Foreign Debt Shows Its Teeth as Rates Climb

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U.S. Foreign Debt Shows Its Teeth as Rates Climb

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  • December 2006
  • 1193 Words
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Americans have enjoyed being the biggest consumers within the last decade. They have bought up foreign goods with foreign credit. Recently, they are being pressed to change their spending habits and start paying off their debt. With American's trade deficit and foreign debt, the recent rise of interest rates have brought concern to a problem that has been persisting for over a decade. Trade deficit occur when countries consume more imported goods and services of more monetary value than the amount which they export. For example if 2024 the United States exports $2 trillion worth of goods and services and imports $2.76 trillion worth of goods and services, the results would be a $760 billion trade deficit. Trade deficits are a problem that is solved by increasing exports and decreasing imports. Another option would be to use reserves to compensate for the deficit, but they will inevitably run out. America's pseudo solution to the problem was to look to foreign investors to support its rapid expansion. "The U.S. trade deficit is the result of a net inflow of capital to the United States from the rest of the world. Because of the United States stable and relatively free domestic market, America remains the world's most popular destination for foreign investment. America has become a net importer of capital because Americans do not save enough to finance all the available investment opportunities in their economy. This inflow of capital from abroad allows us to pay for imports over and above what we export. In other words, the trade deficit is simply a mirror reflection of the larger macroeconomic reality that investment in the United States exceeds domestic savings. If we want to change the U.S. trade deficit we must change the rate at which Americans save and invest." On the other hand, foreign debt or external debt is that part of the total debt in a country that is owed to creditors outside the country. The United States of America has an estimated...

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