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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (3244)	3/12/2002 10:44:21 AM
From: Robert Douglas	Read Replies (3) \| Respond to of 3536

From Business Week: businessweek.com Deeper Debt for Uncle Sam How much longer can the U.S. rack up gigantic current-account deficits? The world's largest debtor is getting deeper in hock to the rest of the world by the day. Economists at Goldman, Sachs & Co. predict that the net debt of the U.S. will reach nearly $5.8 trillion by the end of 2006, which would be about 46% of that year's gross domestic product. In contrast, the net debt of the U.S. was just 13% of GDP as recently as 1997 (chart). In a report last month, Jim O'Neill, Goldman's head of global economic research, calculated it would require a 30% increase in U.S. exports to halve the deficit in the U.S. current account--the broad measure of trade in goods and services and investment income. A 30% export increase would be a stretch, though: O'Neill calculates that to achieve it purely through more favorable exchange rates would require a 43% depreciation of the dollar against other currencies. Alternatively, he says, the current-account deficit could be halved through a 23% increase in foreign demand. Goldman has worried about U.S. trade deficits since 1999, when it called them, in a headline, "Unsustainable!" Its alarm was premature: To date, the debt burden has been light because foreigners have financed U.S. spending by buying U.S. stocks and making direct investments in the U.S., such as building factories. But in 2001, foreigners switched to buying bonds, which place a heavier burden on the U.S. because they require interest payments. Last year, 97% of the U.S. current-account deficit was financed by net foreign purchases of bonds other than Treasuries. O'Neill concludes that "it is difficult to be anything other than cautious for the outlook for the U.S. dollar."