Summary by Michelle Lai

The article discusses how Americans have “spent too much, borrowed too much, and imported to much,” and should stop or face a continuing accelerating foreign debt.

While income has increased, the rate of spending has tripled. Borrowing from foreigners then finances the excess consumption. The author suggests that Americans need to cut back in consumption and start paying back the borrowed money, this resulting in a reduction of standards of living for Americans. Dollars from U.S. exports will also fall due to a falling dollar and pressures to lower the federal deficit will lead to cuts in defense spending, which then addresses the question of how long America intends to militarily dominate the non communist world.

As foreigners continue to invest in the U.S., the point has come where investors are no longer willing to accept IOUs but rather be paid in U.S. goods or with portions of U.S. business. The accumulating of huge foreign debts, thus causing enormous budget deficits year after year, has now caused the raise in real interest rates to attract foreign capital, which has made the dollar strong. The strong dollar then caused the trade deficit to rise and in addition wiped out one million manufacturing jobs.

The author attributes the problems to tight monetary policies and loose fiscal policies that have dominated in the Reagan administration. Despite having corrected inflation, decreasing the growth of the government, giving a 5 year bull market, and restructuring the U.S. industry, the costs of such undertakings are extremely high and now must be dealt with. The author suggests that the sooner the policy changes, the less sacrifice Americans have to make. By convincing the Japanese and the West Germans that the U.S. would be able to finance their own deficits will not only lead to decrease interest rates, which stimulates capital investment needed in the U.S. to become fully competitive, but also gives these nations a reason for stimulating their own economies. The result of greater productivity and economic growth in the U.S. will not come from supply side policies but perhaps from the imposition of flat wages, increased import costs, decreased government spending, increased taxes on consumption or a combination of such methods.