Usually sure-footed, Martin Feldstein stumbles when he argues that “America will need a trade surplus” in order to “repay” today’s trade deficit [Opinion, “Thinking About the Dollar,” July 28, 2008].

First, the only part of the trade deficit that must be repaid is the part that becomes debt, such as when foreigners buy Treasury notes. When foreigners buy dollar-denominated equity or real estate, or when they make greenfield investments in America or simply hold dollars, no debt is created. None of these investments require repayment.

Second, when it comes to repaying debt, the trade deficit is a red herring. It matters not if a creditor is an American or an Armenian: the debt must be repaid and, if repaid in dollars, those dollars will eventually be redeemed for American goods, services, or assets. (The last could put upward pressure on America’s trade deficit.)

Uncle Sam and many private Americans might well have financed excessive consumption with excessive debt, but, if so, the problem is the debt and not the nationalities of the creditors.

Donald Boudreaux

Chairman

Department of Economics

George Mason University

Fairfax, Va.