US becomes net debtor to the world

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It's official: The United States owes the rest of the world more money than the rest of the world owes the US. The nation's broadest foreign-trade measure registered a near-record $31.8 billion deficit from April through June, confirming that the country has become a net debtor for the first time in 71 years.

Called the balance on current account, the trade measure reported Monday by the US Commerce Department tallies not only merchandise trade but also trade in services, mainly investment earnings.

Commerce Secretary Malcolm Baldrige said in June that it appeared the country had become a net debtor. Monday's report provided further confirmation. Indeed, the current-account deficit is likely to top $120 billion this year, making the US the world's leading debtor nation, substantially ahead of the previous leaders, Brazil and Mexico.

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Because the US will now be paying out more in investment payments than it will be receiving, the country can no longer depend on the flow of foreign dividend and interest payments to US investors to help cover trade deficits. As a result, the country will have to depend on running merchandise trade surpluses -- something very unlikely in the foreseeable future -- to dig its way out of debt.

The Commerce Department said the deficit in the current account was 4.9 percent higher than the $30.3 billion imbalance suffered in the first three months of the year.

Since the country began the year with only a $28.2 billion surplus in investments, the $62.1 billion in deficits for the first six months of the year has undoubtedly wiped that surplus out.

Monday's report showed that the $31.8 billion current-account deficit for the second quarter came near the record deficit of $32.5 billion in the third quarter of 1984.

The imbalance came from a record $33 billion merchandise trade deficit, which swamped a small gain in investment and other service receipts.

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