REVIEW & OUTLOOK (Editorial): The Debtor Diversion
We recall when "the energy crisis" was the centerpiece of received wisdom. The establishment understood the predicament: The weight of the earth was finite, so energy prices had to rise indefinitely. Someday we would look on the shelf and discover there is no more energy. Then we would all freeze in the dark.</br></br>In the last year the establishment has been similarly mesmerized by the predicament of "a debtor nation": The American public has such an all-consuming desire for, say, Japanese automobiles that we have to go hat-in-hand to Japan for loans. We are living beyond our means, and have become the world's greatest debtor. Someday we will look on the shelf and find there is no more foreign capital. Then we will all turn into Mexicans.</br></br>This week the Commerce Department released the latest version of the "debtor nation" statistics. The "negative net international investment position" of the U.S. increased to $236.6 billion in 1986 from $111.9 billion the year before. The wails over this soaring "debt" were somewhat diluted, however, because someone noticed that one big reason for the increase was the soaring value of the foreign stake in the U.S. stock market. Can this be all bad?</br></br>It may be an apt moment to talk some sense about both "debt" and international statistics generally.</br></br>The absolute first thing to understand is that there is zero chance the U.S. will be faced with the debt problems of Mexico or Brazil. Their problems reached crisis because their debts were denominated in dollars rather than their domestic currencies, and became unmanageable when the dollar rose and their currencies collapsed. The U.S. foreign debt, by contrast, is denominated in dollars. If the dollar collapses, so does the real value of the debt.