The United States, already the world's largest debtor country, could see its foreign debt increase to more than $2 trillion by 1995, seriously cutting into American living standards, a congressional study said Saturday.
The report by the Congressional Research Service rejected claims by the Reagan administration that the country's status as a large debtor country was not cause for concern.The study predicted that while the country's trade deficit will finally show an improvement this year, after deteriorating for six years, this improvement could be short-lived.
The report forecast that the deficit in the broadest measure of trade, the current account, would fall to $151 billion this year, down slightly from a record $154 billion deficit in 1987.
The report predicted a further decrease to $129 billion in 1989, saying these improvements were virtually assured given the declines in the value of the dollar that have already taken place.
But the study said the trade deficit would begin rising again sharply in the 1990s and could hit $326 billion by 1995.
The study said it based this outlook on assumptions that the dollar does not decline further in value and that current growth rates and interest rates in the United States relative to other countries remain essentially unchanged.
The dollar has actually been rising in recent weeks, prompting concern among economists who believe the U.S. currency still needs to drop for the U.S. trade deficit to narrow further. A cheaper dollar makes U.S. exports more attractive on overseas markets and imports more expensive to Americans.
If the dollar does not decline, the report projected that the heavy import penetration the United States has suffered through the 1980s will continue.
The string of higher trade imbalances would mean that the country's position as a net debtor would worsen as well.