Every other night or so, the calls start pouring in from Asia to the homes of Peter Leonard and several traders he supervises at Nomura Securities in New York, jolting them awake sometimes as often as five times a night.
The calls come from places such as Tokyo, Shanghai, Hong Kong and Singapore, where investors want to buy U.S. mortgage-backed securities, which are essentially giant packages of mortgages on thousands of American homes. Such sleep disturbances have roughly doubled in the past year, according to Leonard, reflecting the sizzling demand among Asian money managers for a piece of the U.S. mortgage market.
The interrupted slumber of Nomura's New York mortgage traders is one small facet of the rapidly rising flow of foreign money into U.S. financial markets. This torrent of capital from overseas has become indispensable fuel for the U.S. economic engine, helping to keep interest rates low.
But the influx of capital has an ominous flip side -- the ballooning U.S. trade deficit, which soared 24 percent in 2004, to $617.7 billion. The dollars spent by Americans on Japanese cars, Chinese televisions and other imported goods end up in the hands of foreigners, who plow them into U.S. Treasury bonds and other securities like the ones sold by Leonard and his fellow traders.
Therein lies a serious worry for many economists: As the deficit mounts, so does America's overall indebtedness to foreigners, which now totals about $3 trillion. That would be less troubling if the money streaming in from overseas were helping to finance a boom in productive assets such as factories and machinery.
But to the contrary, economic data show historic highs in the proportion of U.S. spending on consumption and housing. Not only is the United States piling up debt, it is doing so while consuming at record levels.
"It's like, 'I'm going to Bermuda with the credit I'm racking up on my credit card,' rather than, 'I'm going to school and putting my school books on my credit card,' " said Catherine L. Mann, a scholar at the Institute for International Economics.
That dark perspective is at odds with the position often taken by Bush administration officials, among others, about the trade deficit (or current account deficit, as its broadest measure is called). The gap, according to the administration, should be viewed in a more positive than negative light, given the eagerness with which foreigners supply funds to the United States.
As Treasury Secretary John W. Snow put it in an op-ed piece in the Financial Times a few months ago: "The deficit reflects foremost the strengths of the U.S. economy -- high productivity, strong U.S. growth relative to growth abroad, and the relative attraction of investing in our robust, dynamic economy, which has the deepest and most resilient capital markets in the world."
America's attraction for foreign capital can be readily discerned in the streets of Washington, where a number of buildings have been sold to foreigners in recent months. A group funded by Middle Eastern investors recently bought 901 F St. NW for $56 million, German money was behind the purchase of 2100 M St. NW for $95 million, and other foreign investors bought a portfolio of properties, including 5225 Wisconsin Ave. NW, for a sum in the $200 million range, according to Bill Collins of Cassidy & Pinkard, a real estate services firm involved in some of the transactions. A survey of global real estate investors last year showed that the United States continues to rank as the No. 1 country for "stable and secure" property investments, with Washington as foreign investors' top city.