US debt to foreigners seen hitting record highs
Obligations could become drag on U.S. economic growth, meaning that Americans may have to work harder just to keep up, paper reports.
NEW YORK (CNNMoney.com) -- The U.S. is currently paying out more to foreign lenders than it is receiving for the first time in at least 90 years, which could weigh on the dollar and force Americans to work even harder, according to a report published Monday.
Though small compared to the larger economy, the U.S. obligation to foreign creditors reached $2.5 billion in the second quarter of 2006, The Wall Street Journal reported.
Most economists, the paper reported, said the explosion of debt owed to foreign lenders has been helped by their willingness to lend to the U.S. at low rates. That in turn has encouraged American buying and spending both at the government level and the consumer level, helping to cover tax cuts and enable Americans to pay for homes and automobiles.
That debt, which could swell to as high as 5 percent of GDP if the U.S. doesn't rein in its current account deficit, ultimately means that consumers, companies and the government will not be able to spend or save as much of their income, which could hinder the country's ability to grow economically, the Journal reported.
And continued borrowing of new debt from foreign creditors is possibly the most troubling for economists and could lead to larger interest payments while at the same time making it more difficult to control the current account deficit, according to the paper.
"You end up having to pay more and borrow more," University of California's Professor Pierre-Olivier Gourinchas told the Journal. "Things could get out of hand very quickly."