People in other countries have invested $1.5 trillion in the United States and withdrawals could bring a recession, a former top Treasury official says. C. Fred Bergsten, who now heads the Institute for International Economics, a study group financed largely by the West German Marshall Fund, issued the warning on Wednesday. Bergsten said the investment by other countries in the United States is in private hands. ``Some of it's in the form of plant and equipment _ that's not going to come out rapidly,'' he told the House Budget Committee. ``But close to a trillion dollars of it is liquid, and about half a trillion has come in just the last five years to finance our massive trade deficits. ``On future occasions, if foreigners withdrew money, the effect on interest rates, our economy, the exchange rate, could be much more dramatic.'' It has happened before, he said. ``The last time the dollar fell sharply _ I happen to remember painfully because I was in the Treasury at the time _ was in the late 1970s,'' he added. He was then assistant secretary of the Treasury for international affairs. He recalled that the United States had to borrow about twice the amount of its trade deficit because foreigners were withdrawing money at the same time. ``If we got anything like that magnitude now, we'd have to find a way to borrow $300 billion from foreign officials or somewhere to keep our books in balance,'' he said. ``That could only be done at prices that would bring the whole economy to a shuddering halt.'' He said the most enduring legacy of the Reagan administration would be the conversion of the United States from the world's biggest creditor country to the biggest debtor. Current foreign borrowing by the U.S. government is about $150 billion a year. ``At the end of 1987, our net international debt stood at about $400 billion, more than the external red ink of the next three largest debtors _ Canada, Brazil and Mexico _ combined,'' he said. ``Under the most optimistic adjustment scenario, that number will rise to $750 billion before it could possibly level off, and a more likely outcome is much closer to $1 trillion.'' Bergsten said the United States needs to shift its annual international trade balance by about $200 billion, more than the current deficit, because the additional cost of interest on the foreign debt will be close to $50 billion by the early 1990s. It would be reasonable to try to reach this target in four or five years, he said. He said it can be done only by cutting the federal budget deficit by $150 to $200 billion in the same period. He added that unless these cuts can be made, the value of the dollar against other currencies could easily fall by another 20 percent or 30 percent.
