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A tsk-tsk-ing, judgmental tone tends to infect media reports of America's trade deficit, foreign debt and declines in the value of the dollar. Americans consume too much, the story goes. We rely on other countries to carry our debt and our rate of saving is too low. America is the grasshopper of the world stage, not the ant. We are cheeseburger-swilling, SUV-driving, cable-TV-watching grasshoppers, and the declining dollar is the just desserts for our carelessness and self-indulgence.

An economist named Robert Aliber disputes this commonly accepted thinking about foreign debt and trade deficits. He wrote an essay for a current affairs publication called "The Wilson Quarterly" that I found fascinating, because it paints a different picture. Trade deficits are a consequence of currency flows, he says. America's trade deficit came first. The other parts of the story—high consumption, low savings, increasing debt—are all effects that resulted from this cause, and not the other way around.

To understand, begin with the unique status of the U.S. dollar. Our dollar is the currency used to quote commodity prices internationally, and it is the leading international reserve currency held by foreign central banks. Part of the way we preserve this beneficial status for our currency is to place no restrictions on its flow. Restrictions on other currencies (during the WWI period) are part of what got us our status in the first place. Accordingly, if anyone wants to sell their goods to obtain our dollars, we let them. And if anyone wants to abandon a shaky currency, then the dollar takes up the slack—automatically. Thanks to the dollar's status, America is the counterbalance of international trade.

The 1997 decline of the Thai baht provides an example. The fall of this and other Asian currencies produced a $155 billion trade surplus in that part of the world (because goods there were suddenly so cheap). Like yin to yang, our own trade deficit increased by the same $155 billion. Other foreign-currency crises in recent decades (Mexico, Argentina) produced similar effects.

By definition, such an inflow of wealth to U.S. dollars has to go somewhere. It can help pay for direct investment in the United States, for example—such as constructing a building. If total investment in the United States does not increase sufficiently to allow this, then domestic investment can drop off to make room. Or the federal government can increase its deficit and borrow the inflow.

In the case of the Asian currency crisis, the total increase in U.S. investment was hardly enough to absorb the inflow, and our government had closed its deficit (if only for a moment). The market chose the remaining option, as Americans reduced their savings rate to reduce their domestic investment.

It wasn't self-indulgence that drove this reduction, or at least not unchecked self-indulgence. Stock prices were increasing at that time, and so was household wealth. In increasing numbers, Americans were meeting whatever savings goals they had set for themselves. Beyond that point, they directed their money toward other pursuits—namely consumption.

None of this should be misconstrued to mean the trade deficit isn't serious. The flaw may lie in flows of currency rather than our national character, but recognizing this doesn't solve the problem. In part because of the way it feeds government borrowing, the current system urges a currency toward collapse.

Today, our federal deficit increasingly soaks up the foreign inflow. Trade deficits lead to federal deficits not only because more credit is available to politicians, but also because of reductions in tax revenue that trade deficits help to bring about. Our debt is now so large that we borrow from foreigners to cover the interest on debts we already owe to foreigners. The situation is unsustainable, and recent declines in the dollar's value (as purchasers choose instruments priced in other currencies) may indicate that the market is beginning to acknowledge this.

What will happen? In theory, foreigners will eventually end up owning every asset and security in the United States. In reality, something will alter the situation before then. Precisely what will occur, and when, is unknown.

The transition to a more stable flow of wealth into the United States is likely to involve discomfort. Effects may include higher interest rates as the demand for our debt dries up, along with inflation and higher unemployment. This last effect would result from an increase in the U.S. savings rate (grasshoppers becoming ants), which would entail reduced consumption.

The negative effects would be temporary. But just how "temporary," and how severe, are impossible to say. The transition may be gradual, or it may be wrenching. Dr. Aliber, whose ideas I have been drawing on here, sees the matter as "largely beyond anybody's control." Just as we did not choose how the inflow of wealth increased, nor will we choose how it declines.