Worrisome Debt

Globalization long has been regarded as a made-in-America phenomenon, driven by Silicon Valley's technology, Hollywood's movies and Wall Street's cash. But suddenly, countries formerly on the periphery of world events seem poised to challenge American dominance of this age of global integration. It's not only that developing countries are proving to be white-hot investment opportunities, though they are: the Morgan Stanley Emerging Markets index gained 242% the past four years. It's also that emerging markets, once known dismissively as the Third World, are now central to Americans' lives. Not long ago, these countries were of interest only to the Peace Corps. Now, everything from the financial lifeline that makes possible the modern American lifestyle to the identity of your next boss, customer, competitor or cultural trendsetter likely can be found in the developing world.

"We're in the middle of the biggest shift in 200 years — since the Industrial Revolution. It's really that big," said Antoine van Agtmael, the investment manager credited with coining the term "emerging markets" in 1981. The new prominence of emerging markets represents a sharp departure from the flurry of financial crises that tore through Mexico, Asia and Russia in the 1990s. Since then, scores of developing countries have cleaned up their balance sheets, slashed inflation rates and accumulated enormous stockpiles of hard-currency reserves. China alone sits atop a $1 trillion mountain of cash. Russia, Mexico, India and South Korea also are swiftly building their cash hoards, according to Treasury Department data.

Developing nations have gone from beggar to banker. The U.S. must borrow enormous sums each day to finance the gap between its anemic national savings rate and its consumption. Increasingly, those funds — largely raised by selling Treasury securities — come from poorer nations. Through November, the most recent data available, more than 29% of the $806 billion in net securities purchases came from developing countries compared with just 5% in 1998, according to Bank of America. The river of capital flowing into the U.S. economy enables Americans to continue consuming beyond their means. But some analysts find it worrisome that the world's wealthiest nation now depends on loans from some of the globe's poorest countries.

• JJ Commentary: Worrisome? Our debt-ridden ways are coming home to roost. Our financial future is in the hands of those countries who despise us. Worrisome? Nay, disastrous.