More specifically, 2005q4 was the first time (at least in the dataset extending back to 1967) this series breached zero; 2006q1 was the first time there were two consecutive negative readings. Figure 1 shows net asset based income, along with a 4-quarter moving average, both normalized by GDP.
Figure 1: Net asset based income receipts as a share of GDP. Source: BEA Sept. 18 current account release, St. Louis Fed FRED II, and author’s calculations.
A large component of this shift is due to the rising interest bill associated with US Government debt. Net interest payments to GDP, along with the 3 month T-bill rate, are displayed in Figure 2.
Figure 2: Net interest payments on US Government debt, as a share of GDP, and 3 month T-bill rate (secondary market); 2006q3 data for up to Sep. 18. Source: BEA Sept. 18 current account release, St. Louis Fed FRED II, and author’s calculations.
The main point that I draw from this graph is that interest payments on US Government debt are accelerating in volume, and with short term interest rates still rising, we should expect this ratio to rise again in 2006q3 — especially if GDP growth slows as anticipated in the current quarter. And as Brad Setser notes, if US government debt is longer term, then the immediate effects of the higher rates has been muted thus far. As world interest rates remain persistently high, a greater and greater proportion US debt will reflect these higher interest rates, imparting further upward pressure on this category.
So I’m betting on continued negative, or near zero, net asset-based income, on a BoP basis.