'In 2004 net US borrowing came to an estimated 666 billion dollars, an annual savings inflow of roughly 5.7 percent of GDP, a number never before reached. At the end of 04 it was still heading upward and approaching twice the previous record in the mid-80s, just before the dollar fell by a third.
'This foreign inflow finances over 4/5ths of US domestic net investment. At the end of 04, foreign central banks held 44 percent of publicly held Treasury debt, up from only 19 percent ten years ago. No leading economy has ever incurred these levels of foreign debt.
'Many nations find at as convenient to save and lend as it is for us to consume and borrow. Everyone has a near-term incentive to avoid any adjustment.Yet the longer we and they fail to reverse course in a coordinated fashion, the more likely it is the adjustment will be late and sudden, with a steep decline in the dollar, a big hike in interest rates, nasty effects on markets worldwide, and a prolonged and painful period of economic stagnation.
'Trouble is, our creditors (mostly Western Europe and Japan) are aging rapidly. They will eventually need their savings at home to pay for their own retirement systems, which are even more costly than our own.
There is another deficit problem in this country, the federal budget deficit:
'In 2004 the IMF, who normally worry about profligate nations like Argentina, took direct aim at the US, warning the world that we are careening toward insolvency. They pointed to a growing imbalance between what the federal government has promised to pay in future benefits, and what it can reasonably expect to collect in future taxes. Its long-term structural deficit now exceeds 500 percent of gross domestic product. Closing that gap, the IMF calculated "would require an immediate and permanent 60 percent hike in the federal income tax, or a 50 percent cut in Social Secuirty and Medicare. -P.Peterson, Running on Empty, 2005