LIKE MEXICO AND BRAZIL, the United States is now an international debtor on a large scale. Mexico and Brazil each owes around $100 billion. Here in the United States, foreign investments now outweigh American investments abroad by about $170 billion, and that figure is probably rising at a rate of about $125 billion a year.
There are important differences between the Latin debts and the United States'. Mexico and Brazil owe the money chiefly to commercial banks. The foreign funds were mostly sent to this country by people who were attracted by high returns in the American financial markets or who wanted their money in American banks for safekeeping. But the economic effect is the same. Just as the Latins have to pay interest on their foreign debts, so must the Americans. While the burden is lighter here, in proportion to the size of the economy, it is already beginning to be large enough to affect the country's prosperity.
It's the first time since before World War I that the United States has been a debtor. For 70 years it was a creditor, piling up investments abroad faster than foreigners invested here, with the net balance reaching a peak of $142 billion in 1981. That's all gone now, and the accounts have swung heavily in the other direction. The Commerce Department's Bureau of Economic Analysis has published a detailed accounting of the country's investment position in 1985, and the figures are, in a gloomy way, instructive. Not much of the foreign money is being used to buy businesses in this country, or to start new ones. Most of it is going into the market, from which it could be withdrawn very quickly if its owners ever decided that the prospect was better somewhere else. It is very volatile money.
Nearly half of it last year came from Western Europe. Another fourth came from Japan. Nearly a fourth came from Latin America, nearly all of it apparently tucked into bank deposits.
Most of the debtor countries, in the past several years, have gone through wrenching programs of adjustment to get their foreign accounts under control. The exception is the United States, which does not really look on its debts as debts since, after all, those people sent their money here voluntarily. But the same thing could be said of the banks that sent their money to Mexico.
There's nothing wrong in principle with borrowing -- if the money is used well. Mexico got itself into trouble by borrowing and using the money disproportionately for consumption. Now it is going to try to rescue itself by borrowing more, this time to strengthen its industry. Here in the United States, with business investment falling, the foreign money is mainly supporting consumption and an unearned standard of living -- which is very pleasant, as long as the foreign lenders keep lending.