By Lee Hamilton

Even among those who are aware of it, the current account deficit ranks low on the list of America’s top concerns. Yet our growing debt to the rest of the world is a serious problem, and threatens the long-term prosperity of the U.S. economy and the ordinary American.
 
America is saving too little and spending too much, just as we produce far less than we consume. The U.S. current account deficit — the difference between what we export and what we import — stands at $805 billion, well over 6 percent of our gross domestic product (GDP). In 2005, our trade deficit, which accounts for most of our current account deficit, rose to $723 billion, nearly double what it was in 2001, and a 19 percent increase from 2004. To use one bilateral example, the Chinese now export nearly six times as much to the U.S. as we export to China.

These imbalances are worrisome. To begin with, the U.S. economy could become less competitive. Already, good jobs that support a high standard of living have been lost to other countries in sectors ranging from manufacturing to high-technology services, and the trade deficit has pushed down wages across the manufacturing sector. Meanwhile, individual Americans and the U.S. government are borrowing more and more money to purchase goods and services that keep our country running and economy growing.

Another result is a dangerous dependence on foreign investors, principally from China, Japan and oil-rich Persian Gulf states. Together, foreign investors own more than half of U.S. government bonds. These foreign investors buy U.S. dollars (and bonds) to keep the value of their own currencies down and their exports to U.S. markets up. As a result, our government can run an annual budget deficit of nearly $400 billion, while enabling low interest rates and home mortgage costs for Americans. Warren Buffet, the influential American investor, recently summed up these concerns by warning that the U.S. is moving away from an “ownership society” and is instead becoming a “sharecropper’s society.”

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Yet we have been spared the gravest consequences of debt thus far only because foreigners have been willing to take our IOU’s; that means the fate of our own economy is out of our own hands at a time when we face rising competitors like China and India, and volatility in international energy markets. We must significantly reduce our budget deficits, so government revenues are more in line with spending. We need to save more and spend less. And we should bolster American competitiveness through investments in education, science and technology and the development of American productivity, particularly in 21st-century industries.

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This author is indeed correct by concluding America is living on borrowed time, not to mention borrowed money. By allowing our budget deficits to become quasi-permanent fixtures on the federal budget, the United States government allows itself to depend more and more on foreign markets and investors, at the expense of American taxpayers.

By being fiscally irresponsible with the budget, the Congress and the president have slowly given our economy to foreign markets and stockholders, increasing our dependence on foreign sources of investment and capital. There may be a time when foreign investment dollars dry up, allowing the United States to default on its debts. This would have a large impact on the American economy, leading to an increased risk of recession, higher interest rates, and higher taxes. It is only in the interest of the United States to get back to being fiscally conservative, while giving the principle of a balanced budget another look.