nuncio comp omni) JF CB ‘American Economic Policy and the International Debt Crisis Hae Wenwen Si! “nepaperadan the hye athe wnt et cin ial eddy eda RidiWSinmensnin tie tft gr fer teroe mere tm at ‘Sef git OS momsny poy so ease avetmem ces poised Ye TSE US us wfneh were oy hw the oss ld be nce he US ‘Smaps ono cape abn hy ben moe dented. hen ruc Sewer wry no ng pce et 1 Preliminary Remarks “Th international dee eis Began a probe ofthe rei elationship barca {hc USA and its Latin American neighbors Sine 182 Mexico Per, Argetin, od Bar ave raced or stopped servicing ther debs ann 975, <0 ote ‘Sountrc® gro exeral dete were owed o private American tanks Since 1982 the criti as spread to other eens and Bropesp ane Japanese banks Have ao Tonto wrt ff art oftheir clans. African and Asan developing count, 00, have encountered payments fens, How did ba svation come about? Currey at east thre dierent posible explanations have Been oleed “Th iret atin: the problem othe carlsines of the debtor counties ‘tyee overestimated thir ality to repay and underestimated the deb service "Tei tn ag ecm na a echo Pantera comet ere Seen SRE es een Siegen ESSERE ea etnt enn attsectgns no pecamary return, insead of bring wea To Finance private investment rojas whone evene could have Relped Service she debs (Work Developme Report i988). 7 spay. Ih banged that they could sevice thee debts but that there 96 means albert prensreom them occ hei blgatios. Thi makes rational ‘tur (Eaton and Gerson 198, Eaton, Getsowtz and Stigit 1986, Cohen and Sachs 1986, and Nichons 198) Mra ind snplnatin fovasss on the Behavior of the banks. The expan they taped to ean by lending to the developing counties = hi despite tee tErons of every igh vnks valved Emoniger 1986 and Walich 1986, ‘one of these explanations wil be dputed in thi paper. The question of dere Moles of inernatone! ending However, the ole payed by spec Reon psy i the pti debt evs ofthe ast em years bod ee avesinoked The cess iors from the combined fet of many {itera factor but Aimeianecoome policy ay have been response fr the tncat at expioion that occanrod tthe Begining oF the 1980s ate time the serene tarted, and indeed serine have triggered the te off The explosion Sere sopled by aon apa expr rom ober eeloped cous ut rarres Attempts to undetsand the debt eri cannot afford v0 ignore ths debt crisis, and Section 3 diseuses the role of American economic policy see Sy ie Tuc policy introduced during Reagan's presideney. The four ‘ion consider whether ths policy andi effects on the world economy mere ‘Silt for the Americana The fit econ reaches some coneusons and, in fy, Ws Desetapmnt Repos (9 ed Sn (9) Paco Debt ratio) 2 The Debt Crisis in the Light of Intemational Economic Developments [At the tn of 1989 the total external deb ofthe Iss developed countries (LDCS) ‘Sound so almost $12 wllon,Aimot ene third of hi Rad acervd since the ‘Nan othe ftermaona eb ese in 1942. The erasing indebtedness was 201 patcuany when compared tothe other economic aggregates. The development The size thatthe debt problem has taken on nthe eighties s obvious. | ‘The growth of he deb ato doesnot oly reflect LDC bortowing bebavio. ‘he vrs are changes in the dollar exchange rates in recent ears also have ‘opccation ofthe dole teaive ta the cutenses of les developed countries tends ore inthe dolar vale oftheir ONPS. On the other hand, a depreciation Folders 84 H0.¥E 9.7othe dolla raises the dolar value of hoe debts denominated in currencies other than he doi The interfer seems to be tongs than he former explaining the majo part ofthe growth rae ofthe LDC db in T9ES aod 1086 OF CD 1987p 20) While the growth atin dolar denominsted LDC debi was shih rmmotonicall rom 1795 i 1982 109%, 89, 396 snd 2% fn 1986 Silay, the ‘hap decine in the debt rato after 1987 cannot nly be attbuted to deb {he resi of the temporary dalle appreciation in 1988 sad 189, "The development of he debt rato was furthermore nfuenced by the growth ‘veloped countries inthe dead bore (1972-1982) was 195% Sine then 1082. feat itorast baeniGNP ~ ogi eal LEE EEL Ee Te ae Bw WT Year torr (a op 210900 Gl, I See OF Note:The rtoskownin te abe defied Non ont LDC deserve —(USODP 1999) the average growth rte his Been 1.3% apd is showing no tendency to improve: Asagains hse growth rate of USpr capi output was oniyO.8%in the decade before the cts and rose nthe following seven years ta an average of Sib. Figure compares the LDC growth rate with he growth aes ofthe OECD ountis andthe USA. (The curves eprere indexer whose 1982 sales have Deen Seveqalto 100) lean beseen hat, nthe yearrbefre the international Set cr, ‘merged, the USA and less developed countries changed place nthe promt rate ranking onder, developed connie, Figure shows how the res interest hurden has changed feative to LDC GNE. The eal interest burden i defined asthe nominal merest della export or por prices could have slo been sed, But, a mos the debsarc defined i dolar nit and a the dll the most epost transactions Crency seme appropriate to me Ue basket of goods produced in the USA as the numerire. (Tobe sur, erme of trade changes have contributed the debt ‘si, bu thes change should not be confused with debt service lets.) “The igure demonstrates what arguably the most portant single use of the debt ets the deamatc ee he rea interest Darden i 1902. This she year invwhich Mevicn dedared asf unable to eet its payment commitments and tthich seen aa the tart of the crisis Before 1982, LDCs were paying iret bt the ineres pid was not suffient to outweigh infltion loses ofthe creditor ‘Counties De fact, LDCs were Deng reared by the ereditor for being willing {toot ater the lniters money capital Ter ndcbtedaess was nota burden for 1s develope countries, om the contrary provide them with an ever owing Source offal income, They coli afford to eantine borrowings net amount that ‘ros higher than thie instest payment oblipntions and inthe proces were not etomine poorer. Only since 1982 have they actualy had fo Ear an nerest ‘orden. A fundatental ange in cal credit conditions cured in ha Yea ‘Change that could in ao way be expected to proceed smoothly "Fe reason forthe changed conditions was the pi increas ip US nominal su eet nttest te level which quichly spilled overt there ofthe word. The farm of the decide from the 70 to the 8s was characterized by fling inflaton {ates combined ith sharply sing interest ats. This ested ina ie of eal long {erm meres rae inthe US from round zero in 1978/9 to almost 8% in 1984 Since then the aes have allem ut ave no rtarned to anjohre nea thee ol Teves. At Figures shows, ehe average rea intrest rate thatthe less developed ‘countries actualy bad to pay om their outstanding debt exhibited a siilary ‘Sramatic pater, sowing the same jmp in the period before 1984, "The ainresom (rte slay he eualring flee often arbitrage “This aritape fle inportance for that pare of LDC loans maby public Authors. fis sever, very important forthe Hon’ share ofthe loans which is made by private ban the mote soa private oa re rele shor term and Ate therefore fequcnly rescheduled In 1980, for example, according to Work ‘Bonk estimates aly quarter of atin American contre” debt was very long eum: 79% oe loans hada maturity oes tha the yeas and 40% had o be paid back nls than one year (World Debt Tables, 1987/88 (Vol 1p. XD). A Ehange in US imeret rte evel could therefore be tranemited Very QUERY Iter rater on LDC debt. "As Figure tows, the pitore appear particulary ominousifthe rel interest rates of the lee developed counties are defined ia terms of LDC export goods Father than US ouput goods. Resuse the appreciation of the dollar since 198] Feduced the eltive pis of LDC exports the estates for el interest ats for the ptiod following the eri are exter) high with tis Kind of definition, “Capital that otherwise would have Doe available for other counties was kept inthe USA oattased there, by the bigh USimerestrate levels. nly histo Fal ietrost ate (8) Year tm ne of hr el et a he SA a he ep {oer 9; an ae 18/0, p23 19078 Vol Dp nk 48/0, anions Wainwzonion Pst ApH TA 1{5ceratrare athe vera nol tee aby LDC or gover the form ofan on dollar securities which concurrent wth the ongoing is tbe Us tel intretente edo steady se inthe Vale the dll in the ist al of the 80% Later, the subsequent reaction ofthe America erent account balance sulted ina ser large ifaw ofeapital tothe US. From 198, when the dll eguntofall agai shorsrunevsaation elles helped USeapital imports teach peak vloc of 1508 1986and 1967. Assuggestdby Figure the US wasable Fee 4s, 157)Annual not capita impor (oir uss) os Y Year Sire ny ney, 7, ay 888. Wer Beano Outeok. 7, TDS ‘peat A, 8 Lemar Pv on We to import the capital parly by generating export surpluses in other OECD ‘Suntses party by eroming ont LDC capital ports. From 1982401987, anal Fiore ose by $14 exportsby otter OECD countries inecased by $$5tbs and LDC capital ipo fliby S87b° “Toe sha fedtion i the capita imports of the ess developed counties conf the monotonic fll nthe exchange-ateadjsted gromth rate ofthese Countries’ des, mentioned ove, which al fom 179 to 29 heen 1982 and in 1974 and T9E0 tor ls had been a rate reducton in LDC ‘Siam moh seserath eden ene ee captalimports.cven tothe exten of change insgn In those years, however. he ‘Sl price shocks and the resulting sor sun export surpluses of the LDCs were sponsible Therese odustion ia LDC capil ipports came about despite = \Noroningof thier of trae (World Debt Tables, Apri 1988, Table A26) aod ‘Snot therefore simply be attributed 0 revaluation effects. The rapid rein US. {eal intrest rates is undoubtedly se important factor nthe diction of he Capital lows Tne ease ofthe Ae exes fst be sought not ony the es ‘Seveloped countries themselves bu alo inthe USA, the args erie. 3 The Role of American Economic Policy “The sudden explosiveness in Arperzan interest rates can be expe interme {tat eas thes economic ply measires the BNE monetary policy. dhe Dudes ‘etc andthe tan incentives Tor investments introduced by the Reagin [government wen st tok afer in 198 efoe the criss monetary pole ended wo be passive andi effets were not Snmesately apazent. nthe sites, the growth at ofthe nominal soneySupDty ‘Mactated between 4% and 9%, and, an 1982, showed sgh rising end From 1076 the growth rate was never below 6%. Cursory abseration would therefore not italy suggest snuch of role for US monetary policy aan “aplanation forthe igh American interest rats, It must be emembered, however, {hatte lflton rate the al ofthe T's war exterely high and al oa are nent soaked op ths nominal growth the mosey supply. As Figure 8 shows the eat money supply hardly rose all and cern didnot keep pace with the [rowinofreal mation products the MI/GNP ratio was falling ove the Whole ‘cae, contacting each Sear from 1973 by atleast 2°. To this extend, US monetary poy inthe pared before the debt rcs was clearly restive Monetary poi made a dessve cootibution othe nen US terest ates athe eeinning ofthe eighties and 1 the supsequent deb xs. ‘Under ahe Reagan admiration American budgetary poy took a parc lary Samat tury and, despite nindowedrssingattempts to sug ler teas ascally of Keynesian devi Oa the one hand, although a supp ‘stenttion was claimed nly Maleate consideration was nen a reduction In goveomenteapenditae; there war praia transfer rom social defense tapenditure On the eter hand, a oubstantl fection in tax rvende fliowed or the posing of the Economic Recovery Tan Actin August 19, only nine months after Reagan ok offic Inthefive yeas fom 98210 1986 the urmasive US badge det reached what many sum ar the ominous vel of 56300, hes frequently born argued that thelist was unplanned an that it 00k the government by surprize, convinced seed by Laffer selEfinaneng hypothesis Howeve, he eth ie diferent Inthe appendix tote Tax Reforms Act lr Dsl, a taxlons of 8748, bad already been preted for the above-mentionedGrowh~ ons rates (%) vers asm ‘ = | on ap ae TTF Te ew i GE wT HWS WET BB Yoar 6 US Monetary Pe. Ben ee a ip um. 296 ary Cae {ive year period (Ioint Commitee on Taxation 1961 and the Department ofthe "Treaury had in August TI independently enimated a ax es of 872. In government ele at leas, was ly precisely known what to expect “The US budget deficit and the ig monetary poly have often Deen held solely responste forthe high evel of American capita imports i ect Years: However tie iw isd ompatiblewith the enormous investment bom that ‘Secured afer 982 (or Figure). The year 1982 sw not ony the start ofthe debt Sissi was also a year of world wide economic reesston. The increase in inwcsiment nie to jar fiwing hi eceason were according tasty By 4 1.US Flow of an San Sa af er ines aes ey 74 7 Bosworth (1985), wice ws age ain all previous boom phases; shes all had 8 Furproingy stable pater of acireaton of investment. Moreover, here was 3 Cieenoe between capital npports abd the rie in investnent It was more ‘romounted than that between ie budget and current aecouet deficits and there Maran even moe striking coincidence between the asim ofthe rel interest {ie andthe pea of invent sn 1984, Pigver and 7), Nove ofthese aspect ‘iewell with the argument hat the sep oteret ates and the capital nfow that Followed this were caved by the ight monetary poly, noe do they Kit wth the freuen that he government badgetdlcc was the main cup According to both argument, investinent would have, Bad to be reduces or at eas the Investment boom, which fr etceaded that of ear upswing phases, would not Inve bean able o occu “The incentive elect om investment ofthe tx efore of 1981 may provide an explanation for the fat that po 1984, there was an usually song vestmenkoom despite the sc inl interertaten*Anewmethod tax depreciation —the [Aceceated Cot Recovery System wa ineoduced in aition othe investment {axcrdi whch wasa bids of up to 1056 of gross invesiment. Compared tothe previous Asc Depreciation Range System, which was oremed towards the Heal Er ime economic depreciation, the new seme meant thatthe average de Drcciation pein was approximately alved, and, combined wih the investment Tin credy the ofr was equivalent Geet) an imediate write-off stem for indus plat andequipment Thistspect was later put Torvard asthe eicial fetwo for the 1986 tan selon ofthe Reagan government (Depatiment of the ‘Trenaury 1984,pp 105-107) andes recently been documentedagunby Fullerton, Gite and Mackie (987, p14) by mean of tact elelation for seaividual ‘Steger of ioesiment aod "Toe elec of the Accelerated Cost Recovery System on interational capital movernents have Deen eventgated by the present autor elsewhere (Sin {954.1988} On the bate sa model in which internation eaptl movements ome sbout by means of osne contacts ad in which intrest income axed ‘inthe residence principe, was shown that changes tm tak ates nd de- Dreiation alowanccs have very ferent effects op international expital move- nents With true econo deprecation (allowing the Tohannson Samson “stnion tex rate changes o not indice capital moverent, Beene, om the point of view ofthe individual investor, domeate and foreign investments ae Saually aller. In an open economy they afet saving incentives But have no fire eect on insestiat, Acaeated depreciation allowances, om the other hand, are measures that eleiely promote tal domestic ivestment, In Contrast fo an ever fal In tax rates, dese allowances raise the eapitalied alu of domes investment projets fr every given level of nest ates, thot Mimutaing the demand for Investment goods and pushing up the level of omestc interes race fom the demand sie- This leads tothe exchange rate Sint cument agent ellets, described fm te last seein, which make areal pita flow postibie.A tong run, asamilated capital inflow i the order of ‘nite of ot eae $1000 vas foreca (Sinn 198. AC the tne this order of Imegeitude appeared excessive in View of the then current US curfentaeeoun ‘etek, but oy th end of 1990 the value of US capital ports accumulated ince the efor of 1981 wil ave reached approximately SEO. that i almost 90% ‘tthe prec eve "The effects of depresation allowances are often underestimated in the titrate, asthe “only cause femoral 24ftof the tx burden and ot a manent tat sing, Hei acd that depreciation allowances only have & tnlaing etn rc nsertment decsson in the etoduction phase, fork {ele on takes place then, At best here wil bea permanent ax ei etna owing conomy, while in stationary eeonoty the incentive effect on vate ‘Eseutment soon dsappeas because the tax bse will approach that unde re ‘Ronomic pretation, This view cannot stand ypteatheorecl examination, for ‘Souetooks hs factthatanimaanent ei ace, which would be brougt abo tyatrcakinthesream af invesinen,cratera continuing ovstent incentive fen shough th effec of accelerated deprecation ean 0 ong be identified by {Doting at only the sie of the caren ax burden” Ip contrast toredutions tax ten deprecation allomanges do ot provide rms wth permanent tx rl bat ‘Gonmvectes crete rong a lasting ivertment incentives They are» cheap ‘reams of shimating capital formation, means which the USA has made se of ‘rth good reason "Fre inmedite write-off ystem tht the USA i eect ha from 19810 1986 id ot represent ja a margins change, Under tis system, wth comport tax ‘ter of 4695, American investment projets old crt a ate of interest wie as tae spies in coutries where depreciation rules wer oriented towards rue ‘onome depreitton Inotber woud, fora gies numberof mesiment projet, ‘he capital demand eure in he US occurred a rates of eres wie a8 high those n counties that had the same prodcton technologies but did aot have venueot incentives ike the Accelerated Cost Recovery System ad the veut Tau Cred. Looked tin tis ay, the predicted and actual capita infow tate the USA no longer surprising Previous investigations of the Teatonship between American investment sitowance and the capital inflow have coneentated on capital movements ‘Berwe the USA and the other OECD counties (el Sian 1984 1985, 9872, 19595). As Figures sows, these movements were indeed very lage. 1's cleat, however hat sich investigations cam be cated over arfogously 10 the ls ‘veloped counties, Compare to the capital movements that could have Ben ‘rpeted to owcur if Amerean economic policy had been neutral the Jess ‘Scope countries have ais lost capita tothe USA. As mentioned above, thet ‘Spine el anally from about $908. 19820 practally zero io 1987, Site US capil mporterusfrom sero toa good 8 Tab nthe same period! The Weiprobtemot te sot srs ted up with the capital low back wo the USA. The ‘ete orator and the eter exter characteris ofthe criss are imply tbe ‘Steching es of the aptal warsport vehicles that were forest make a sude0 harp ten bythe USA's poly. ‘vauhowomic nd Sn Farua Enso spre th topcase Seeds4 Cub Bono? Who were the esines and who the loses from the defeton of iatermationa} pital Rows toward the USAT The short term advantages forthe USA are well own The American economy snore closer to fll employment than the other ‘OECD countries and ts economic growth feached record heights tials clear ‘that theless devloped countries were adversely affected. The dying wp ofthe ‘Capital lflow freed them oct Buck thei imports aceally and they entered & ‘haseofecomomie stagnation. Thereare however other longa wefaeetectsin [caitiontotheabviowsthort uneffets Theelongrunellects wero beexpected be expected the US had wot “Thee wellare effect canbe ily siagram shown im Figures. Assume a sead-state world economy with a given {ota aptl sock that aaa forthe USA and the let developed unten. With even technologie and piven supplies ofthe other factors of production, cach country hur specific marginal product of capital curve net of economic og po tea ‘i Opti tines fom he Poi of Vawter Cau _acpreciaion, tthe agra, the amount of eapital used by the LDCss measured freon righ an thet othe USA from ht tole The thickly drawn ines te ‘he regional spesife(ne) marginal product of api curves, Thecombined pital oer two countess equ so thelr sombined wealth tthe amowot of “apitalemployedimone county eno necessarily equal to that bony’ wealth {Stisumed that the USA lich athe sons that its weath is larger than the mount rapt represeted by te poi of intersection af the wo curves (LN) that ‘ral be a et ender in the case ofa elie istribution ofthe word capita ‘Mock the dagram, tis asssoed tht US wealth ven by IN and shat ofthe TBs by Ht 3 astumed tht interationl capital movements take the form of bond rang and loan contrets and that nernatonl interest income Hows ate ake acesance wt the OECD Mode! Taxation Convention of 1977(OECD 1977 ‘Thelater means tha the aideneepinipeisused and tht sallsouree taxes are Mowe, ut ae ceed in the country of residence. Under thee conditions ‘pict income tation doesnot fet inerational portfolio avestne ‘Shan the nutonat an tte are iferent, For the sake of Simplicity, the analysis [Tutacs rom differences between profit o corporate taxes onthe One hand and Pevonal income tans on he othe, Thi simphieation ensures that he tation tems do not dcrimigte between seained profits and loans as sources of ‘Hoance anda specication of the frm’ Gnancng decisions can be omited. Tmerntional diferences in tox rates fe pemitd “Supp, in the LIDGs thee acto tax investment incentives a there a a ‘Usp an he depreciation rule regire uve depreciation, Under these conditions. profemaaimringfrmeitveet upto te level where the marginal product of apt requa othe market rate of itretirerpctve of the level of domes axes Sineths investment chav wife optimal fr each invdual LDC whichis ounal tact world interatrtes by ste own actions, tis assumed that public ‘Secatment fotlows similar rls: oficial oan to developing countries are we 10 {nano public projects up ote point where the st peojea's ate of eturmequas {hemrket rate of interest, A vation of thi rater heroic assumption would ‘einy have epontion fora welfare theoretic assesment ofthe capital market ‘SGuilbum from the pont ef view ofthe world as whole. However, a5 the {allowing arpument concerning the assessment ofthis quien fom the pat Sue of the USA would not be affected, the sumption i an admis implication. Us rms, oo, wouk extend ther employment of capital up tothe point where the marginal product of capital eQuals the snerest rate, a ax depreciation ‘Mowaneer followed the theoretical ideal of income axtion an there were 09 inveronent incentives in operation, Inti ase, wor eapital markt equliium ‘Mould determined at pot D were the wo marina product of capital curves preset The word interest ate would be DL, andtbeUSA would iendanamount {of is expt tothe ess developed couricFrom the point of view ofall eentries, tis situation would be optimal ‘caine wold outpa the aren unde te to cove, woul be smaller for ery tine dotnbuon of capital However mn the point of view of the USA in ‘olution, an opin would be ferent. The USA is large country which an {iocnce wert interest ats by i owm ations aod ths an gain fom eatin ‘Guts monopotticepitl supply pli. The essence of such policy wou eto ‘Rise the soppy of eptl om word market and end es expt here wer thors favorable conditions ‘upsets the imveinot incentives introdaced in 198 area suitable means Aocachcvinghisteduton, They indoce Americanfirmstoinvest at hore beyond the pin where te marginal prouct of exptl equals te market rie of nerest lind tus drive the market ore rate upwards, reducing America's wet capital app to less veloped counts, centres tbat mame US national income ‘tint national prodet are optinal forthe USA. The allocation of pita hat Cherrpomds to his tstown by the Cournot pont Cin Figure 8, Below this pint = SUF the marginal product carve of he USA, which i ako he marge) Spporwnity cst curve of capital lending, cus the marginal revenve eure of Eptaltending BK. The marin! revenue ithe ein net intrest income ened une LDCs when te septal supplied to them ineteass by one wnt. Margnat fevenve is below the marae ete of inerest because no price disciinaion i poste and beease the les developed countries impose sours taxes, Without oure tans, the maria fevenve curve Would go through point B. The gross eres, which ibe ft un of capt loaned civ, woul e egal tse Inrgna revenue, With source anes, Rowever the Ht unit of expt st Be ‘onten witha eo tox return below the market ae of itr Inthe optimum, US net nations prod shown by the hatched sr inthe diag const ofthe US et domestic product FMINY plus the net fetor ‘ebine care inthe less developed counter EFI The net mation prodset of the LDCs ts shown bythe dated area a sequal to the ference berween net ‘Bomcite pradct ACOH and et factor income EFDI paid 1o the US. Here the ‘None mare sees ae Cl. equals the marginal product of apt ofthe [DGS tt exccede the argina product of apt ofthe USA by theamount ofthe ‘Gospual US rventment beet CF The marginalsvestinent benefit produces the {op betwoon marpnal cost and margicl Fevense that signe te monopohy fetuion Trihere wete no investment incense, that i the LDC received Loans of capt equal to Te the net atonal prod’ of thee counties would We arr by ‘Re amout CDK. and tha ofthe USA smaller by FDK, shan nthe monopoly ‘ihe For both counties take togeter, there would be a welfare gin of CDF Compared to ihe monopoly situation, but the USA woul be wors fl "oe the ber hand, the mavgialiavestent Benet had Fin to BG, m0 capt oat would have Bes sported. Compared tothe monopoly solution, the LDCs would have to forfei an amount of atonal produstequal BCE snd the USA would lose the amount of EEG, No one woud benefit fom thi The est eae te put of sew ofthe USA therefore achieved when expors rae oe decd) asthe bs steno he port of wew oe word 52 a ehred win expo eapl of emo So meh othe toe vious that tis ode iin many wap, ot itl fo dvebing pret the mee ees ofthe international cb xi In partis the a a sc te sven ake aca to ten the ae oon D with he worl toe stain fos the eb is ‘ule ed be suable, however for Weare anaes that comparss oe a oats te deetopmes ofthe mort eonomy. The en f the ana een daeguioriemauation ote USA which waned Fae ere atetevemonstary poley adage seal tx sefors 1a aaa SScnal tan sym that wold ave edt a word exp te oles ism nD, or anon-estal sem by means of which American ree cata woutd etetvety improve a the expense of he fst of the Wowie er sem as chosen, ge pty ws quantal deine so that he opis poi C coun s Oraether twas timed a Faching iat allan open question, St gato comes mergt to reach ap optima of the Kid Ties ve fr hat Ames cy nasa to ater reste. is more tee amurcan government was ote prepared 10 ut wp mi the aa ae aie at ote worl for the sake of giving ts own eonomy 8 at ae for ves ba fn undertaking. Economie sone oes 20. oor mc teponnc tote question of whether an ono aor opis Si oro ana mud monet pss moa ueementon US sa psn pecsented here aes m0 atempt to expla why the ree Teanyaut high ines te polis, sly coer wih the rar eso tht poly" A arte quantaive ats concene, seme athe Amaia 1 cata achive opis expat impors, Ne all the oficial rae od US net foram wealth postion (US ates abroad mink mE erin te Usp ud aeay become neato in 1964 ad since then at ree dos $b in 1989 Ge Suey of Crtent Bone, June 1950) SOS san wy te on ncn of notin p,m Soe ould Je the quan repped al 27, tet lone become manera oo erations oe, homever appropriate not ate Amen aa eb very array comprise te uated storie! cmt ea avons ad fake no seount othe seca hit vale an eee purine Sine America vesten overess cured eat onsen gu cic pete onthe ety fr governed ston mist 8‘an fcsign investment in he USA, the sock sass must show Americans to be poorer than they really ae (se also Armuzegar 1988 and Sinn 1987, . 230, 1.38). This obwerrations conlted by looking atthe Now sass for the net fetor income Americas sesive fiom overseas The later showed hat, ant 1988, aot even he sign for the American wealth potion could have been core Tn 1986, the US was reported to have ant fordign wealth postion of $331. ‘bet thet svestment sncome recived bythe US was 8.6. eee Survey of ‘Carzet Business, lune 190, Tab.2) twas pot oi 1989 that this net income ‘rentally turned aegative. Only now can tere be litle Soubt thatthe US is {ebtor county. ‘So seme tht a more moderate policy fivestmentaceves might have hjped the US to icreae te matonal advantage from lend capital abroad. The policy actully chosen was 00 '5 Concluding Remarks and Future Prospects “The US economic policy atthe srt ofthe 1980s was gai experiment which used ll Kinds of eruption tothe world and which was observed With inoredolous aronishment by many non-US economists The combined effects of ‘ery estctive monetary poe, an exepionally expansionary badge policy and | mniveinvestmontinoptiv scheme led to aru explosive inresein American fea ners ater This in tur dove the dol fo unanticipated heights and, by Sway ofa current account defi induced a hugeiilow of capitalito the US. The Tees devloped countris were faced witha reden, uoeapectel change in the ‘conditions oftheir lane contracts In the seventies, they had bee, sn effec ‘ewarded nth for of neptve eal intret ate,for their beipfeloeeinloking “her the capita loaned to them, now they were suddenly Faced withthe demand ‘ha they actly service thee Gees In some counties te immediate reaeion ‘he changed eonditions wat elurl pay —this wat the twardsign that a debt {Siss was occuring However the cteumatance ha th igh interes ate orca ‘helen developed courte to ably limi thei credit its was probaly even ‘hors important. Tas imitation resulted ina sagnation phate which ncreared te (lebreatioinseadofreducingt Avarenilt of Amercan poy thedieng ores of conomicgrowh wereshited away (om he les developed countries and the rest. ofthe word tothe USA. "This esl could have Ben nthe Amerisan interes, ot ony roma hort ua poin of vic, bat alg interns of long run investment strates, ha te policy Beem ota move moderate dengn, The United States, athe former largest capital Capone, could have manoeuvered ul into a position were could hve leat “omens lox capital to developing counties under more favorable contion: than previously: However, the policy was too strongtoacheve ths tesul abd gave ‘et capital ports which were larger than opal, Ameen sono oy sh nena De Cri ms Since then in the light ofthe magnitude f the reaction tots oticy the US tus Become nervous about ts own ring. The tax reform introduced i 1986 Canceled many aspects of the T9S1 reform." Ty paniular, the investment ‘esntvey Brought ip 198% were largely set aside. The fll nthe dll from 1985 eam be seen as tection to the new tax ffor which had already been “annonce in 1984 Thi fall may lend to Topp term improvement in the ‘American curent account balance and thar toa drying up of eal impents nto the USA" itso, the experimen would then bea an en ad ths woul os & hope for a ented phase of growth i he em developed counties ad elsewhere {the word with moderate intrest ates and loans contract that can actaly Be filled by lew developed countries Th new American tx ystems argely fee {tthibes” for apt ae Samuelson (1968) onc ale depreciation allowances ‘Capital an again flow frely to those countries where i can most wsefilly be ‘mployed It to be hoped tht the preset less developed counties wil be References Amz (198 he US Feral Dein eget Pane evn ne: er (4) Taserand vn Rese. reoking Papen Bana Acti I= ott D Sachs (986) Gran and Eero Deb ander Bi Det Repidaton, aren sng et it) Bee i lepton, Teele Empat sgn Gs ne Ee ee Then tory Rik Ep noni rg imme ees ne un rele FB KE ‘en a) Flaw o he Bt Eenam 382023 Foetal Ul Oe of Te Asa 60) Compete fa Ran ‘Wnsingon 1967 US. Goveroment Printing Ofc va Cont nn » Pron Cr Sy Comin Coin even 8) Sosa of H.R, 42 The one Recovery Tat ct int, Wuhingon 18) US Goverment Pong fie a oa (i ahannre Senses: Bat 6 Dunes 4 oa eeSng 9s‘nem ase Nuctumopchgeic bac fr Naonnosoas en Sat ‘OFCD M67 Financing pe Era Det Bevel Cons. 98 Sey. P 187 ‘Sinn HW (8 Beene Acland Con Reson Se fr en ineronses| ‘Sian HW (985) Why Tones Mater: Reng’ Accelerated Cost Recovery System ad the US “rae Emami ey |, Rpt Pa ed) Reet Dees {Massena Noha ier ge 1981 sit Cpe cine Renee Aborto, Aste, ew Yor Son n(bnen Tae a ning teat Cpa Make and ‘Sing H-W (19880) Beschleunigtesteueliche Abschrsbungen:Verpufende Asie? ahrbucher ‘hmuct 6, Cuben On AE eon) Demons senna Slept (cn Poi Fane and Perma of ates, Dt Way Si Uy ‘ayn (99) Foal Rule al FrononeRecntuton in Lata Antic MF Working wae ime the Staite Periods