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The United States as a heavily indebted country

Author

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  • David H. Howard

Abstract

According to data published by the Department of Commerce, the U.S. net international investment position (roughly the net external debt position with its sign reversed) at the end of 1987 was a negative $368 billion. This sum represents a deterioration of about $100 billion from the end-1986 level. The sharp downward plunge in the United States' net international investment position in recent years is, of course, a reflection of the large current account deficits recorded during most of the 1980s. In this paper, the U.S. net external debt position is examined and compared with the experience of other countries. The paper then proceeds to analyze the dynamic process of external debt accumulation. Concepts of external debt \"stability\" and \"sustainable\" external deficits are discussed. Next, a simulation model is developed with which various illustrative scenarios--involving alternative assumptions about exchange rates and demand growth--for the U.S. external accounts are generated and compared. Using these scenarios as background, the U.S. external adjustment process is discussed. Policy implications are then addressed, including the usefulness of focusing on the trade balance, rather than the current account, as the key indicator of external adjustment.

Suggested Citation

  • David H. Howard, 1989. "The United States as a heavily indebted country," International Finance Discussion Papers 353, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:353
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1989/353/default.htm
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    Cited by:

    1. William L. Helkie & David H. Howard, 1991. "External adjustment in selected developing countries in the 1990s," International Finance Discussion Papers 417, Board of Governors of the Federal Reserve System (U.S.).
    2. Edwin M. Truman, 2014. "The Federal Reserve engages the world (1970-2000): an insider's narrative of the transition to managed floating and financial turbulence," Globalization Institute Working Papers 210, Federal Reserve Bank of Dallas.
    3. Catherine L. Mann, 1990. "Prospects for sustained improvement in U.S. external balance: structural change versus policy change," International Finance Discussion Papers 373, Board of Governors of the Federal Reserve System (U.S.).

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