>Silly question, but doesn't an increase in US foreign debt imply that US
>capital is flowing abroad, purchasing real assets and hence foreign
>countries accumulate dollar claims?
Some of it is, but the foreign direct investment and equity accounts are more or less in balance. The major action is that more U.S.-based entities are borrowing abroad than foreign entities are borrowing here.
> So we can infer that profit rates are
>too low in the US but large enough elsewhere for a successful expansion
>(otherwise why would capital move abroad).
Doubtful. EU profit rates are relatively high, but Japanese rates are low, and U.S. profit rates are almost certainly higher than either. Profit rates are probably high in the major "emerging" markets, but the data is a bit iffy - and in any case, there's not a torrent of capital going to those regions anyway.
> Assuming profit rates are
>maintained and the US has the military muscle to keep other countries from
>adopting Malaysian like financial controls, couldn't foreign debt be
>expanded indefinitely?
It can be expanded until the lenders have second thoughts. That could be happening already, or it could happen in 2012, who knows?
Doug