foreign debt

[Brad De Long]

>Brad De Long wrote:
>
>>But if you are a country with a large national debt relying on
>>internationally-mobile foreign capital to finance a large chunk of it, that
>>seems to be the way it is.
>
>Is it your, or anyone's, sense that elite policymakers worry about 34% of
>Treasury debt being held by foreigners, up from just 21% in early 1995? Do
>they worry about a net foreign debt of $2 trillion, and a net international
>investment income slipping into the red? You used to hear about this in the
>1980s, when the numbers were much smaller, but you almost never do now.
>
>Doug

Back in 1993 Alan Blinder's and Laura Tyson's view was that it was just too
late to do anything about it: we had embarked on a path of becoming a trade
deficit nation in order to finance the Reagan deficit, and that financing
that budget deficit by borrowing abroad was a better option than crowding
out domestic investment. There was a general belief that a weaker dollar
(or "a stronger yen") would be a good thing, but that steps taken to obtain
such a weaker dollar would scare off foreign investors--and that we badly
needed those foreign investors to finance the deficit and hold the debt.

Now, of course, we still need the foreign investors to be willing to hold
the debt on reasonable terms (and the debt is of *very* short duration, so
the U.S. government is *very* vulnerable), and in addition--with the Bank
of Japan and the Japanese government comatose, with European governments
playing their contractionary-fiscal-policy-for-Maastricht game, and with
the Bundesbank behaving as usual--someone has got to be the locomotive of
aggregate demand for the world economy, and the U.S. seems to be picked for
the role of importer of last resort.

I think people still worry about it. I think more people would worry about
it if there didn't seem worse things to worry about first...

Brad DeLong