But it has also aggravated the imbalanced global wealth distribution. Take the US for example. The world's largest debtor has used its astronomical national debt as a forceful weapon to maintain, as well as expand its dominance over the international financial order.

America's increasing trade and current account deficits are mainly the result of its large-scale purchase of products, resources and services from other countries to maintain the low-cost, high-quality life of its citizens. In the process, huge amounts of dollars have flown into other countries, increasing America's trade and current account deficits.

On the other had, a large amount of international capital has flown into the US in payments for American financial products, such as US treasury bills and notes. This has helped fund America's huge trade and current account deficits, boosted its repayment ability and contributed to its long-term economic prosperity.

The national debt owed by the US federal government reached more than $12 trillion last year, or 86.4 percent of its gross national product (GNP) and five times its fiscal revenue. This was in sharp contrast to its 2.4 percent negative economic growth and 10 percent negative fiscal revenue growth last year.

The global financial crisis has highlighted the decline of the US' debt payment ability. That, however, has not prompted US credit rating agencies to adjust their graphs.

But as countries in Europe and regions beyond started recovering, investors showed stronger interest in transferring their assets from the US to other parts of the world, with the eurozone being the preferred destination. As a result, the US suffered net capital outflow in the first three quarters of 2009, the first in more than two decades. This not only dealt a heavy blow to the US financial system, but also disrupted the US-dominated international cycle of debt-dependent economy.

The US has taken measures to retrieve the inflow of dollar-denominated capital in order to reverse the unfavorable trend. The Dubai debt crisis and the sovereign debt crisis in Greece and other European countries have offered it a good chance to do so. US rating agencies have kept downgrading the ratings on Greece, Spain, Portugal and other debt-plagued nations, causing financial turbulence in Europe and accelerating the flow of international capital into the US.

US national debt, bonds and other dollar-denominated assets have again become attractive investment targets. US Department of Treasury's data show foreign creditors held $3.96 trillion worth of US national debt at the end of April, 1.87 percent more than the previous month.

Is it fair then for the US to still enjoy the world's highest credit rating when its national debt is as high as 90 percent its GDP?

The author is a research scholar in economics with the State Information Center.

China Forum

(China Daily 06/19/2010 page4)