The United States earned dubious distinction as the world's largest debtor during the Reagan administration. Under George Bush, the nation has slipped deeper into red ink.

U.S. net foreign debt was $694 billion at the end of 1990. When President Reagan came to office in 1981, the United States had a net creditor position of $125 billion.This accumulation of debt is likely to have several consequences. First, growth in the U.S. gross national product will be slower and real living standards will rise less quickly. Second, the debt burden will lead to a restructuring of the economy toward less consumption and more investment, fewer imports and more exports. Third, manufacturing firms are likely to be on the cutting edge for decades to come. The U.S. service economy may have reached high tide in the 1980s.

The good news was that the increase in U.S. foreign debt last year came to a mere $25 billion, the best performance in almost a decade. Foreign ownership in the United States will continue to rise, but almost certainly at a pace well below the 16.8 percent compound rate of gain typical during the 1980s.

The Reagan administration spent far more energy attacking the statistics on U.S. foreign debt than in dealing with its underlying causes. While Commerce Department figures on debt are riddled with inconsistencies, such failings are not true of the Federal Reserve's U.S. balance sheet, a treasure trove of valuable information.

Federal Reserve economists systematically adjust Commerce Department statistics, which are based on original costs, for changes in market value and in the relationship of U.S. and foreign currencies. Though the Fed's data are far from perfect (economic measurements never are), they provide a guide to the nation's true economic position.

On the domestic front, the Fed reported a whopping jump in corporate debt. Non-financial corporations had a debt-to-equity ratio of 89.5 percent last year, up from 87.5 percent in 1989 and 51.6 percent in 1980. Consumers have followed a similar pattern. Household debt was 22 percent of net worth last year, up from 20 percent in 1989 and 16 percent in 1980.

The leveraging of America will play a critical role in the 1990s. Foreign investors still are eager to lend and invest in the United States. In recent weeks central banks have been active in the foreign exchange market in an effort to put a lid on the surging dollar.

But over time the real cost of servicing U.S. international debt will rise. Moreover, the threat of a political backlash against the buildup of foreign assets in the United States is clear. Gross foreign-owned assets in the United States came to $1.64 trillion in 1990, up from $401 billion in 1980 and only $99 billion in 1970.

The data shows that U.S. investors consistently earn about one-third more on their overseas investments than foreigners earn on their assets here. This disparity has persisted for almost 50 years. Furthermore, the foreign rate of return tracks the yield on long-term U.S. government bonds with extraordinary fidelity.

This conclusion should be taken with a grain of salt. There is no evidence that U.S. investors are always smarter than those overseas. And the idea that foreign investors can't achieve a yield better than the risk-free return on long-term Treasuries is silly.

This means that the official figures understate the true economic cost of servicing the $1.6 trillion portfolio of assets held by foreign investors. The geometric expansion of foreign assets in the United States suggests that this distortion will become larger over time.

The Fed's analysis of the domestic U.S. corporate balance sheet was also disturbing. Based on replacement values, stockholder investment in U.S. corporations came to $3.9 trillion, or about 70 percent of GNP. Ten years ago, current-cost corporate equity equaled 100 percent of GNP.

Companies piled up record levels of debt, but failed to acquire earning assets needed to service that debt. Firms borrowed during the 1980s to play

financial games - to pay down their own equity, for example.

The drop in the quality of corporate debt was symptomatic of deeper problems. The rationale for increased leverage is to improve profitability. If the cost of borrowing is less than the rate of return on the assets acquired with those funds, then the earnings on investment will go up. This did not happen.

One of the iron laws of economics is that savings and investment are equal - not sometimes, but always. If profitability declines, then savings will decline. If savings decline, then investment will decline. If investment declines, the trade balance will not improve. In that case, both the dollar and U.S. living standards will gradually erode relative to other industrial nations.

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