U.S. Increases Lead as No. 1 Debtor, Owed Record $263.6 Billion in ’86

The United States owed the rest of the world $263.6 billion at the end of 1986, more than double the 1985 total and more than the next three most debt-ridden nations combined as the country lengthened its lead as the world’s largest debtor nation, the government reported today.

The rapid plunge has occurred since 1982, when the country was the world’s largest creditor nation, with $141.1 billion in investments.

The Commerce Department said the new debt burden was 135% above a revised $111.9 billion in debt to foreigners that the United States was carrying at the end of 1985.

That year marked the first time since 1914 that America was classified as a debtor nation. That means foreigners now own more in U.S. investments than Americans own in foreign investments.

With today’s report, the U.S. debt dwarfs even its closest rivals.

Brazil Far Behind

The developing world’s biggest debtor, Brazil, stands far behind at $108.8 billion. Add No. 3 Mexico at $101.6 billion and Argentina at $51 billion to Brazil and the total still is smaller than the United States’ debt.

For 1986, foreign investment in the United States shot up 26% to total $1.331 trillion. That swamped a 13% increase in U.S. investments overseas, which totaled $1.068 trillion at the end of last year.

A string of record foreign trade deficits has wiped out the country’s traditional surplus as Americans have transferred billions of dollars into the hands of foreigners by buying imported cars, television sets and a multitude of other products.

The country’s plunge into the status of a debtor country is directly linked to the merchandise trade deficits. The only way the United States will be able to pay off its foreign debt is by running surpluses in its merchandise trade accounts, something economists don’t see happening for a long time.

Could Set Record

Because of this view, economists are predicting that total U.S. foreign debt could hit $1 trillion by the early 1990s.

Many economists believe that such a heavy burden of foreign debt will reduce Americans’ standard of living as foreigners demand higher and higher interest payments just to service the debt.

President Reagan has sought to downplay the change in the country’s position, saying it just proves how attractive America is to foreign investors.

But the driving force behind the country’s rapid slide into the status of a debtor has been its huge trade deficits. Foreigners have been more than willing to take American dollars in exchange for sales of their products in this country.

While economists believe there will be a slight improvement in the trade deficit this year, it will only slightly slow down the country’s big buildup of foreign debt.

Foreign Holdings Up

Foreign holdings of Treasury securities climbed $12.3 billion in 1986 to total $96 billion. Foreign governments, including Japan and West Germany, have long complained that the high federal budget deficit is robbing those countries of investment income and is a primary source of sluggishness in the world economy.