<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=Content-Type content="text/html; charset=iso-8859-1"> <META content="MSHTML 6.00.2716.2200" name=GENERATOR> <STYLE></STYLE> </HEAD> <BODY bgColor=#ffffff> <DIV><FONT face=Arial size=2>People always say that foreigners keep funding our current account deficit because the returns on investments in the US are so much higher than in the rest of the world.</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>But why, then, are America's debt service payments on its external liabilities so small compared to the size of the liabilities? Here's what Fred Bergsten says:</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV>"These payouts are surprisingly small so far, amounting to only about $14 billion in 2001, because foreign investment by Americans yields a substantially higher return than foreigners' investments here."</DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV>So if returns on investments in the US are actually much *lower* than investments abroad, why does the US keep sucking up so much of the world's capital?</DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV>Could a major reason be that countries are being semi-coerced into putting a lot of their savings into low-yielding short-term US debt  and bank deposits in order to build up forex reserves that protect them from exchange rate swings?</DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Seth</FONT></DIV></BODY></HTML>