Who's Your Daddy?

Living beyond our means.

Other nations hold a record 52% of it [national debt], leaving U.S. economy vulnerable. For most of U.S. history, the national debt was something that America owed itself. What was borrowed by the government was lent by its people. The liabilities of one were the assets of the other.

But that has changed as the federal government has increasingly looked abroad to finance its prodigious borrowing. Foreigners now hold a record 52% of the government's $4 trillion in outside debt, up from a quarter in 1995. Later this month, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke will go to China to ask the Chinese whether they could see their way clear to buy fewer IOUs and more iPods, Boeing jets and such.

There is nothing inherently wrong with foreigners owning American debt. In fact, these and other investments pouring into the USA help keep interest rates relatively low and the dollar relatively strong. To some degree, these investments reflect confidence in the American economy. But the very things that make this infusion of cash attractive also spell trouble.

The growing reliance on foreigners, in many cases foreign central banks, reflects a nation digging itself further into debt and denial.

Perhaps the best comparison is the many credit card offers that come in the mail each month. In the short run, by making borrowing so easy, they can prop up living standards. In the long run, the bills come due.

The foreign money is no different:

It postpones the day of reckoning, allowing U.S. policymakers to act like bankrupt shopaholics, running up debt to pay for tax cuts and new programs while leaving it to another generation to repay.

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