For a Country, a Lot of Debt Is Not Always a Bad Thing

This is the VOA Special English ECONOMICS REPORT.

Listener Adamu Onakpa at Hillside High School in Cross River State, Nigeria, has a question.  How can the United States be both the richest nation in the world and the biggest borrower?

Part of the answer lies in how you look at borrowing.

Generally, a nation's public debt is considered along with the size of its economy in terms of the gross domestic product.  The G.D.P. represents the value of all goods and services produced within a territory in a year.

The United States debt is the world's largest: more than eight and one-half million million dollars.  But so is the G.D.P.: more than twelve million million dollars.

Economists often look at public debt as a percentage of gross domestic product.  Measured this way, the United States had the thirty-fifth largest debt last year, about sixty-five percent of G.D.P.

That was less than Canada, Germany or France -- and a lot less compared to Japan and Italy.  Both have public debts larger than their G.D.P.  So, in this way, the United States debt is not considered oversized compared to other developed nations.

Still, many experts remain concerned about federal budget deficits.  The historical average is a little more than two percent of G.D.P.  The White House Office of Management and Budget reported a deficit of just over three and one-half percent in two thousand four.

Since then the deficit has fallen.  But there are concerns that future costs could grow sharply, in part because of the Iraq war and federal programs for older people.  At the same time, the economy has slowed.  Increased borrowing in times of slow growth can quickly add to the debt.

In the past, the government borrowed mostly from Americans.  Today, foreign countries -- especially China and Japan -- have been willing to buy huge amounts of American debt even at low interest rates.

Americans have been hearing a lot lately about the economic risks should that willingness ever change.  But the issues involved, including international trade, are more complex than that.

Foreign direct investment in the United States continues at record levels.  The Congressional Budget Office says America's foreign investments add up to almost ten million million dollars.  And that is more than the size of its debt.

And that's the VOA Special English ECONOMICS REPORT.  You can download transcripts and MP3 files of our reports at voaspecialenglish.com.  I'm Mario Ritter.