Uncle Sam, Spendthrift Banker

Uncle Sam, Spensthrift Banker

A SPENDTHRIFT banker is a threat to the financial stability of his community--especially when his community is the whole non-Communist world. In many respects, the U.S. has adopted the role of global banker: it issues the currency (dollars) that other nations use to pay their bills and store up their savings (in the form of official reserves). Unfortunately, however, the U.S. has developed persistently profligate habits, pouring out more currency than its clients need or want. Some 43.3 billion U.S. dollars are now, in the words of one Congressman, "sloshing around the world."

The dollars have been pumped out by the U.S. balance of payments deficit--a term that sounds formidably technical but is quite simple in concept. The balance of payments is the grand total of money that Americans and their Government spend, lend and invest abroad, matched against total receipts from foreign sources. A deficit occurs when more money goes out of the U.S. than comes into it. This has happened in seven of the past ten years, and lately the gap between U.S. international spending and income has reached alarming proportions. Last year the U.S. spent a record $10.7 billion more than it took in, and by some estimates the figure totaled $5 billion during just the first quarter of 1971. Among the reasons:

> The U.S. military role in the world has continued to grow, while the power of the American economy, relative to the rest of the world, has dwindled. U.S. military expenditures abroad contributed an average $2.4 billion a year to the balance of payments deficit in 1960-64, but last year the drain was $3.4 billion. The Viet Nam War alone siphoned out around $1.5 billion in 1970.

> U.S. tourists now spend as much abroad as the Pentagon does. Tourist expenditures, a relatively minor matter in the early postwar years, have increased in every year since 1946. In 1969, the last year for which total figures are available, tourists left $3.4 billion outside the U.S.

> U.S. industry is pouring out money to expand operations overseas. The net outflow of American capital to the rest of the world rose from a 1960-64 average of $4.5 billion annually to $6.4 billion last year. More than half that figure, $3.9 billion, represented corporate investments in foreign plants and facilities. The rest of the outflow was caused by such activities as the purchase of foreign stocks by Americans and short-term U.S. bank lending to foreigners.

> Americans are buying more Volkswagens, Toyotas and Sony TVs. U.S. sales of goods and services to foreigners still exceed purchases, but this trade surplus has been shrinking and can no longer pay for as much of the military and tourist spending and corporate investment abroad as it once did. From $8.5 billion in 1964, the trade surplus plummeted to $1.9 billion in 1969. The surplus rose to $3.6 billion in 1970, but that increase is less encouraging than it looks. Exports rose less and imports held up more than they have in past recession years--an indication that U.S. industry is losing its competitive strength.

In sum, Americans have gone on spending, investing and soldiering abroad as if the nation were still the overwhelming economic power that it was immediately after World War II. For many years foreigners believed U.S. assurances that the balance of payments deficit would be brought under control. They no longer do, and their doubts about the responsibility of U.S. economic behavior have turned into a distrust of the value of the dollar.

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