Centerfield

Foreign Debt

An old professor of mine challenged the notion that the growing national debt in the Reagan years was a problem. He said, "If the American government owes money to American creditors, it's a wash."

But to finance the Iraq War, we've gone overseas

For most of this year's second quarter, the United States was waging a war in Iraq, with help from the British and not very many others. There were demonstrations around the world against the war. But guess who was financing it? The world was. Figures released this week showed that private foreign citizens bought an unprecedented $129 billion in United States government and agency securities. Official accounts, mostly central banks, added $43 billion more.

All told, foreigners bought almost 80 percent of the net increase in Treasury and agency debt during the quarter. They now own 38 percent of outstanding Treasuries, more than double the figure of a decade ago.

But notice--they weren't giving us money, they we're lending it, and we have to pay it back. A more multilateral approach would have resulted in more "grants" from other governments and fewer loans.

I don't reject unilateralism per se, but it's important to recognize its costs.

Posted by rickheller at September 12, 2003 01:15 PM