The United States will have to borrow almost $100 billion a year from lenders abroad each year between now and 1990, deepening the nation's new status as a debtor country, according to a report released yesterday by the Joint Economic Committee.
William A. Cox, a specialist for the Congressional Research Service of the Library of Congress, said that the heavy imports of capital ultimately will require higher taxes to retire the enlarged national debt, and will lower the average American's standard of living.
Cox said that the heavy capital inflows in the past few years have held down the level of interest rates, perhaps by as much as 5 percentage points. "The vital question is whether foreign resources will continue to flow in rapidly, and what a slowdown would mean for the U.S. economy," he said.
In releasing the report, Joint Economic Committee Chairman Dave Obey (D-Wis.) noted that Cox's findings are based on fairly optimistic assumptions on the economy -- a 3.3 percent annual real growth rate -- and on a successful conclusion to the Senate-House debate on trimming the budget deficit.
"That is 0.9 percent above the 2.4 percent growth rate experienced over the last four years," Obey said. "I would say both assumptions are on the optimistic side, and it would be prudent to expect the debt to be even higher."
Cox said in his report that the federal deficit, now 5.6 percent of gross national product, could climb to nearly 9 percent of GNP by fiscal 1988 if spending cuts are not enacted. "Such a situation would create a dilemma for economic policy. Raising taxes or cutting spending to curb yawning deficits at a time of weak economic performance could undermine the economy further," Cox said.
Obey stressed the report's findings on the need for continued massive capital from abroad.
He noted that the United States has not been a debtor nation -- owing more abroad than it has loaned -- since 1914. According to the Department of Commerce, the United States moved from the creditor to the debtor ranks early in 1985. Obey predicted that the United States would surpass Brazil's $102 billion debt next year.
"The one thing that the Congressional Research Service can't tell us is how long foreign lenders will be willing to lend us these sums of money. If they are not, our external debt will grow more slowly, but interest rates would be much higher, many private borrowers, including business, will not be able to get loans at all, and the prospects for economic growth will be nil," Obey said.
The situation would be even worse if the United States has a recession, as some economists expect, Obey said.