Bob is a good name …

I am a big fan of Robert (Bob) Rubin, so if I cannot be Brad, Bob is not a bad second choice.

The US has racked up a deficit of around $2,247bn (€1,821bn, £1,260bn) since 2001 without suffering the ill effects predicted by textbooks: chronic currency weakness and surging interest rates.

In fact, the dollar has staged a modest revival over the past six months. More mysteriously, America's debt to the rest of the world has actually declined as a share of national income since 2001. 

"It is as if America has been splurging on a credit card without the purchases showing up on the monthly bill," says Bob Sester, an analyst at Roubini Global Economics, a research company. But many economists believe the US has been living in a fools' paradise. Its debt to the rest of the world looks set to rise steeply over coming years. By the end of the year - and for the first time since records began in the 1960s - the US is likely to be paying more to service its debts than it gets in foreign income.

As this happens America will find itself borrowing not just to fund current spending but simply to service previous debts - a position more commonly associated with a developing economy.

As Chris Swann's Financial Times article emphasizes, as the US external debt rises, so to will the interest that the US has to pay on its debt.

Just for the record though, I don't think the US will run a $75 b investment income deficit in 2005.   It is hard to give out numbers and dates with precision over the phone.  The 2005 investment income deficit will be more like $10 b.  

I do think the US will run a $75 b investment income deficit, but not before 2006.  The Fed's tightening won't just have an impact on the profitability of the US banking system (and hedge funds that fund themselves in dollars?).  It will also increase the average interest rate on US external debt.  Plus, if the US is financing a $800 b plus deficit at 5% or so in 2005, it will have to pay an extra $40 b in interest in 2006.