THE LOOMING U.S. EXTERNAL DEBT: HOW SERIOUS IS IT?

This article examines the state of U.S. external debt accumulation, especially the rising burden of interest payments. It points out that the favorable yield differential between U.S. external assets and liabilities may be declining at the same time the United States has become the world's largest international debtor. The favorable yield differential has enabled the United States, which became a net debtor in 1987, to avoid making net interest payments on its international debt until 1994. However, servicing the increasing U.S. net international debt is likely to be a much greater burden in the future as the favorable yield gap wanes while net debt continues to grow. Copyright 1997 Western Economic Association International.