Volcker Warns of Too Much Reliance on Foreign Capital

The United States is facing grave risks from its growing addiction to foreign capital to help finance huge federal budget deficits, Federal Reserve Chairman Paul A. Volcker warned today.

Noting that the federal government is spending more than it takes in and that the country as a whole is buying more abroad than it sells, Volcker said these two deficits cannot be sustained.

“They imply a dependence on foreign borrowing by the United States that, left unchecked, will sooner or later undermine the confidence in our economy essential to a strong currency and to prospects for lower interest rates,” he told the Senate Foreign Relations Committee.

Volcker said the U.S. economy, “the largest and richest economy in the world,” is being required to draw on funds from other countries that might otherwise have been invested.