CAMBRIDGE, Massachusetts -- Many people have been asking why the dollar hasn't crashed yet. Will the United States ever face a bill for the string of massive trade deficits that it has been running for more than a decade?
Including interest payments on past deficits, the tab for 2006 alone was over $800 billion -- roughly 6.5 percent of the U.S. gross national product. Even more staggeringly, U.S. borrowing now soaks up more than two-thirds of the combined excess savings of all the surplus countries in the world, including China, Japan, Germany and the OPEC states.
Foreigners are hardly reaping great returns on investing in the U.S. On the contrary, they typically get significantly lower returns than Americans get on their investments abroad. In an era in which stock and housing prices are soaring, the central banks of Japan and China are holding almost $2 trillion worth of low-interest bonds. A very large share of these are U.S. Treasury bonds and mortgages. This enormous subsidy to American taxpayers is, in many ways, the world's largest foreign aid program.