America has borrowed so much money from foreigners that “for the first time in at least 90 years, the U.S. is paying noticeably more to its foreign creditors than it receives from its investments abroad” (Wall Street Journal, September 25).

During the second quarter of 2006, the United States paid out $2.5 billion more than it took in.

Although $2.5 billion may seem controllable in the context of America’s $13 trillion economy, economists worry the trend could quickly worsen if interest rates continue to rise.

America has become the world’s largest debtor nation, borrowing billions of dollars per year from the rest of the world. When interest rates were low in America, as was the case earlier this decade, interest payments were manageable and Americans felt comfortable taking on more debt. However, as interest rates have climbed over the past two years, interest payments have risen too. Consequently, the debt burden is beginning to be more readily felt.

The Wall Street Journal points out what becoming a net payer means for Americans: “In years to come, a growing share of whatever prosperity the nation achieves probably will be sent abroad in the form of debt-service payments.”

Total U.S. foreign debt—the value of all U.S. stocks, bonds, real estate, businesses and other assets owned by non-U.S. residents—now stands at $13.6 trillion (approximately $119,000 per household). By contrast, America currently owns just $11.1 trillion in foreign assets.

But even if interest rates do not significantly rise, economists expect that, because debt in America is continuing to grow, the burden of foreign debt payments will increase. According to John Kitchen, an economist in the White House’s Office of Management and Budget, if trends continue, in 10 years’ time foreign debt payments could suck out 5 percent of the nation’s gross domestic product each year (ibid.).

“Your standard of living is going to be reduced unless you work much harder,” says Nouriel Roubini, chairman of Roubini Global Economics. “The longer we wait to adjust our consumption and reduce our debt, the bigger will be the impact on our consumption in the future” (ibid.).

Spending money you don’t have may feel good at the time (and there are legitimate reasons why borrowing makes sense), but don’t forget that eventually it must be paid back—with interest. The higher your debt, the greater the vacuum created as interest payments suck the money out of your budget. In America’s case, for the first time in 90 years, the debt vacuum is now working against us.