President Reagan confused two sets of basic economic statistics at his news conference last night when he cited "a false impression . . . that a trade imbalance means" that the United States is a debtor nation for the first time since World War II.
Commerce Secretary Malcolm R. Baldrige highlighted the change months ago, and Commerce Department figures released Monday confirmed that the United States owes the rest of the world more than the rest of the world owes it.
This is due largely to the tremendous increase in foreign investment in this country, which Reagan cited last night as a sign of America's economic strength.
There are increasing concerns that U.S. status as a debtor nation is further evidence of the nation's economic vulnerability. There are fears in financial circles that, if foreign investors lose confidence in the American economy and begin to withdraw funds, interest rates would increase as government and the private sector scramble to retain overseas money.
The debtor status also means that this country cannot count on income from its investments overseas to help overcome mounting trade deficits and finance the large federal budget deficit. Instead, the budget deficits are being covered by foreign investment, largely purchases of government bonds considered gilt-edged securities.
Figures showing the United States is a debtor nation are contained in a report on the nation's balance of payments, the broadest gauge of international financial transactions. It includes investments and trade in goods and services. The United States had a near-record balance-of-payments deficit in the second quarter of this year, $31.8 billion, and the deficit is expected to reach $120 billion for the entire year. Last year's deficit was $101.6 billion.
This deficit shows that income on U.S. investments overseas and on trade in services such as engineering and insurance are no longer enough to cut the deficit in merchandise trade, expected to reach $150 billion this year. This figure measures neither investment flows nor trade in services such as banking and insurance, as Reagan correctly noted last night. But the figures that showed the United States becoming a debtor do include these exports and imports as well as the flow of merchandise trade.