As a nation, the United States is living well beyond its means.
Through August, the trade deficit stands at a level that is already bigger than the whole of last year - and is headed toward a record amount that many economists see as unsustainable.
At some point a political event, a stock market dive, renewed US inflation, or something else could trigger a damaging reaction to the big imbalance between imports and exports.
"The only question is whether the deficit will come down in a well-modulated way - or will it cause serious maladjustments," says William Cline, chief economist at the Institute of International Finance in Washington.
What worries economists is that foreigners, flush with US dollars received as payment for imports, might decide they have too many American assets. They could then start to sell dollar-based assets, especially financial ones, quickly.
The river of red ink is nothing new. The last year when the US posted a trade surplus in goods and services was 1973. But the river has widened dramatically in the past two years, with consumer demand at home fueling imports and Asia's economic slump muting exports.
With Asia and Europe picking up, some economists hope the deficit will gradually adjust downward. The Commerce Department reported Wednesday that in August, for the first time in four months, exports rose faster than imports.
But the monthly trade deficit was still huge - $24.1 billion. Indeed, the imbalance is equal to about 4 percent of the nation's economic output, a level economists see as a red flag.
In Mexico in 1994 and Thailand in 1997, similar imbalances contributed to financial crises, in which their currencies were sharply devalued.
If the US picture doesn't change, many economists say the question is when, rather than if, trouble will erupt.
Catherine Mann, of the Institute for International Economics in Washington, gives the US perhaps two years.
"A ticking debt bomb," says Robert Blecker of American University in Washington. He refers to debts related to the trade imbalance, as foreigners use surplus dollars to buy US bonds and other assets.
The concern is such that Congress in June created a bipartisan US Trade Deficit Review Commission under Murray Weidenbaum, who was White House chief economic adviser in President Reagan's first term.
Traditionally, nations have sought a trade surplus. It means jobs at home as they ship cars, oil, clothing, electronics, and other goods abroad.
But a trade deficit means debt. In the US case, dollars pile up abroad as exports exceed imports. Eventually these dollars must somehow flow back. So governments buy Uncle Sam's Treasury notes; corporations invest in American companies or corporate bonds; individuals buy US stocks.
These foreign-owned obligations offer a return in interest, dividends, or profits. Every day, in effect, Americans are borrowing nearly $1 billion extra from foreigners. That's $3.70 per person per day.
So the question is, will foreign willingness to back all this debt shift?
"It is very difficult to say when confidence will shift," says Charles McMillion, a Washington economic consultant.
Economists point to a troubling rise in America's so-called net financial debt. That's the difference between the financial assets owned by Americans abroad and those owned by foreigners in the US. By the end of this year, it will rise to $2 trillion, an amount equal to about one quarter of the US economy's annual output, calculates Mr. Blecker, author of a new study on the US international financial position for the Economic Policy Institute in Washington. If the trend continues, the US will owe foreigners $4.4 trillion by 2005.
"Our spendthrift ways have enabled the US economy to have a very good period of growth," Ms. Mann says. "But we can't continue to behave in this way."
If foreigners do start bailing out of US assets, it will depress the value of the dollar on foreign-exchange markets. It could also push up American interest rates, as policymakers try to attract foreign money. And that could hurt US economic growth.
Confidence in the dollar can be fragile. A rush for the exits could feed on itself as foreigners dump American assets that, in terms of their own currencies, are depreciating rapidly.
Economists hope America's trade imbalance will be corrected gradually without any panic. Foreign demand for exports is perking up and, if the US economy slows as predicted, American demand for imports should shrink.
Also, the dollar has fallen about 10 percent against the Japanese yen, a bit less against the Euro, the currency of western Continental Europe. That, too, will encourage exports and discourage imports.
Still, some economists argue for specific steps to shrink the trade deficit. Mann sees a need to encourage private savings in the US, to reduce dependence on foreign capital. That might involve a modest slowdown in economic growth, she says.
Mr. Weidenbaum says his 12-member commission is determined to come up with a unified position on the causes and consequences of the trade deficit and recommendations for its cure. Six hearings are planned around the nation, starting Oct. 29. A report is due next August.
(c) Copyright 1999. The Christian Science Publishing Society