Show Us The Money.(foreign investing in American economy)(Brief Article)(Statistical Data Included)

Americans have always wondered just how much the rest of the world really loves them. Well, we're about to find out. As the U.S. economy slows, people from around the globe will have to decide whether they want to keep putting their savings into American stocks and bonds. If they choose to go elsewhere--or just keep the money at home--things could get much worse in the United States.

The U.S. economy has stalled at a particularly inconvenient moment in the world economy. The last time we were in a recession--in the early 1990s--the rest of the world was doing well. Germany, Japan and the Asian tigers were all booming. Plus the U.S. dollar was cheap, which made American exports affordable around the world. The result: foreigners picked up the slack, and the American recession was the least painful since 1945.

But now Japan is stagnant and the other Asian economies are still hurting from the '97-'98 crisis. In Germany growth is slowing. And the dollar is at a historic high, making American exports very pricey. So the rest of the world won't be able to cushion America's fall.

Slow growth abroad has turned out to be a boon for America in one important respect. During the 1990s, the country became the world's most-beloved investment. Japanese, German, Latin American investors all put their savings in America rather than in their own countries.

Thank goodness, because we need the cash. Over the past decade, Americans' savings have plunged, and we now spend far more than we earn. The resulting gap, called the current-account deficit, has to be made up by foreigners investing and lending to us. Last year Americans (people, companies and government) spent $435 billion more than they earned--a historic high amounting to almost 5 percent of America's GDP. America takes in two thirds of all the capital exported from countries with money to spare. (Foreigners buy mostly government and corporate bonds.) If even a fraction of this cash stopped coming in, it could produce a spiral of problems: a falling dollar, which produces rising interest rates, which weakens stock prices and further slows the economy. Practically every time an advanced country has run a large current-account deficit this vicious cycle has emerged--Denmark in the early 1980s, Sweden and Britain in the early 1990s. And none of them had current-account deficits anywhere close to America's.

While ...