Economists see a new peril for America's embattled economy the huge debts owed to investors in other nations.
For years, foreigners have been glad to have their money invested in the United States, with its booming economy and soaring stock market. At the end of last year, they had $2.1 trillion sunk into US bonds and another $1.5 trillion in US stocks.
But today, a slowing American economy and a stock-market bust have left foreign investors feeling less secure.
Many, according to experts abroad, are hesitant to put new money into the US. Some are selling American stocks and bonds, adding to downward pressures on Wall Street.
If foreign doubts deepen, the damage could result go beyond share prices: The sale of foreign-owned assets in the US could bring a sharp drop in the value of the dollar. That could prompt the Federal Reserve to raise interest rates in an effort to keep dollar investments especially government bonds attractive to buyers overseas. Higher rates could damage the economic recovery.
"It is a very dangerous situation," says Jane D'Arista, an economist at the Financial Markets Center, Philomont, Va.
In a Monday assessment of the US economy, the directors of the International Monetary Fund worried that "abrupt reversals in investor confidence ... and a sharp depreciation of the dollar" could undermine global economic prospects as well. A falling dollar, though advantageous for US exporters, would make it harder for American consumers to keep up their eager buying of foreign-made goods.
All this means trouble.
True, the US remains the largest and most robust economy in the world. But to a degree, it is still subject to the money-flow dynamics that can devastate developing nations.
A major factor in the current financial crises in Argentina and Brazil is the debt owed to creditors in other nations. Argentina's external debt amounts to about $141 billion. Brazil owes more than $236 billion.
Yet those debts are small potatoes compared with those of the US. At year-end 2001, the gap between the assets abroad owned by Americans and foreign-owned assets in the US reached $2.31 trillion or about 10 times as big as Brazil's.
Put another way, the US debtor balance amounts to 22.6 percent of the nation's gross domestic product, up from 16 percent at the end of 2000.
To critics, the US has been living high on the hog, well beyond its means. Its hunger for foreign-made goods seen in record trade deficits can be sustained only as long as foreigners are happy to keep buying dollar-denominated assets.
A day of reckoning may be nearing, they say.
"There is a growing disenchantment with the American investment climate," says Robert Hormats, vice-chairman of Goldman Sachs International in New York. Corporate governance scandals and the loss of control over the federal budget in Washington haven't helped reassure foreign investors, who were already reeling from the stock market's dive.
As a result, the dollar has come under pressure on foreign exchange markets.
Thomas Hueck, an economist with HypoVereinsbank in Munich, forecasts that the euro the new common currency in most of Western Europe, will be worth $1.10 in six months and $1.20 at the end of 2003. It was valued at 97 cents on Tuesday, well up from its value a few months ago.
Because the dollar is the major component of the international reserves of other nations, the massive US external debts aren't so risky as those of some shaky developing nations. Many US debts are denominated in dollars, not other currencies.
Nonetheless, economists find the US debts a concern.
"This large current-account deficit is not in the country's interest to keep running for a long time," says William Cline, an economist at the Institute for International Economics in Washington. If foreigners decide they have enough invested in the US and start pulling out, "there could be a fairly abrupt and disruptive correction."
So far, that hasn't happened.
"I don't get the strong impression there is much selling going on," says Richard Reid, an economist at Salomon Smith Barney, the brokerage arm of CitiGroup, in London. "But there is not much buying, either."
The problem is that the US requires an extra $35 billion a month in new foreign money to finance its trade deficit. That's the amount by which the US appetite for Mercedes cars, Sony TVs, and the like exceeds US exports.
For all their new wariness about the US, foreign investors don't have many alternatives. Foreign markets are also down.
Ms. D'Arista, however, wonders about some unexpected event setting off a dollar flight such as a major financial firm running heavy losses in the often-risky deals known as derivatives.
"The US and world economies have entered a period of heightened risk and instability."