The Net International Investment Position of the US

Since 2016Q4, the Net International Inestment Position of the US has become more negative.

Figure 1: US Net international investment position to GDP ratio (blue). Orange denotes Trump administration. Source: BEA (June 30) for 2006-2020, BEA (earlier releases) before 2006, BEA 2020Q2 2nd release, author’s calculations. 

As the Release notes, most of the 2020Q1 changes in assets and liabilities is driven by stock price changes, and dollar valuation changes. Even before then, the deterioration in the position was ongoing; maybe nothing to worry about. Brad Setser interpreted the trend in recent years as the US behaving like a household taking out a home equity loan…I don’t have one of those myself. But I bet there’s a limit…

Update, 8/30:

Here’s a breakdown of the current account.

Source: BEA (June 2020).

35 thoughts on “The Net International Investment Position of the US”

  1. TDM

    Net International Income (IEABCPIN) is still quite positive.
    Our international income drives how much we can borrow and spend.

  2. Barkley Rosser

    Is the capital income balance still in surplus? We have for a long time had this odd situation of the US having this negative net investment position while at the same time continuing to run a net surplus on investment income. This has long been a matter of the composition of the respective portfolios, with the Americans tending own assets that earn high returns, while foreigners holding much lower return assets, such as US government securities as part of the “safe have” strategy. But eventually as that net investment position gets increasingly negative, eventually that net income flow will also become negative, if it has not already. IN any case, that is when things will get more unpleasant for the US.

    1. Barkley Rosser

      “safe haven” strategy, not “safe have.” I see from TDM that the international income balance is still in surplus apparently. It has been awhile since I checked it.

  3. randomworker

    Weird. We used to be told multiple times per day across different media platforms what the monthly deficit was, what our total debt was, what our foreign exchange balance was. Where’d all those people go?

    1. Moses Herzog

      They always go into hiding when a Republican is in the White House. The “best part” of all this /sarc, is President Obama got the debt from W. Bush’s and Hank Paulson’s clusterF*** CDO/CDS (derivatives, whatever your preferred nomenclature) blow up marked on his time in office. So about 85% of the blame for the increase in debt under President Obama was actually W. Bush’s responsibility. But FOX and conservative radio has been more than happy to muddy the waters up on this one, the same as they wanted to blame LBJ for Reagan’s rapid escalation of the U.S. national debt. Which had nothing to do with LBJ. At least Democrats try to match taxes with revenues. But as Mondale found out, this nation his ZERO interest in paying for the services and infrastructure they receive—certainly citizens in the top 10% wealth-wise don’t.

  5. The Rage

    Capital income is irrelevant when debt servicing overwhelms it. It can be high. Doesn’t matter. Sounds familiar.

    1. pgl

      “Capital income is irrelevant when debt servicing overwhelms it.”

      You write a lot of stupid things but this one takes the cake. They have been referencing NET income from abroad so that takes into account “debt servicing”.

      1. Barkley Rosser

        pgl,

        Thanks for the link. Yes, as Menzie also notes, the primary income is the crucial number, and, yes, that does include the debt servicing aspect. As I noted in my original comment on this matter what seems to lie behind this oddity that the US is an international net debtor but still manages to earn a net surplus on its capital income nationally, is the composition of the portfolios on each side. A major part of this is the low returns foreigners have gotten on their large holdings of US government securities, which are indeed exactly this “debt servicing” that had The Rage engaged. American holdings abroad are much more in the form of direct foreign investments in profit-making corporate activities that tend to make higher returns than government bonds. Again, I have not checked on the details of all this recently, but that was the situation a few years ago, and I suspect it still is.

        That said, it looks like that positive primary income balance is smaller than it used to be, although the decline has been amazingly gradual given by how much US foreign net indebtedness has increased. If this net indebtedness trend continues to increase at the rate it is now, there will come a change in that income balance, unless the US starts charging negative interest rates on its securities so that the Treasury can make money on the debt like Japan has almost been doing lately.

        1. pgl

          “A major part of this is the low returns foreigners have gotten on their large holdings of US government securities”.

          The alternative to holding government securities of course direct foreign investment, which one would think would have a higher expected return than then the returns to government bonds. Of course a lot of direct foreign investment involves multinationals, which raise the prospect of non-arm’s length transfer pricing.

          I put up something many years ago on “Dark Matter”, which I later updated noted how China is the flip of the US in this regard. I think I called this Dark Anti-Matter.

      2. Barkley Rosser

        Actually looking at it more closely, there has not been much change in the primary income balance since 2015, remarkably stable given the large change in the net investment position. I really do not know what is going on with that.

  6. pgl

    Trump loves to focus on the trade balance for goods. The problem is that this trade balance deficit has become deeper. Trump loves to talk about how he alone has created the greatest economy in the history of the world so one might attribute the higher trade deficit to higher income leading to higher imports. But we are importing less. It is just that exports have declined since the start of 2018.

    So all of Trump’s bloviating is BS. Trump’s economic record is a failure by this own metrics. But hey – MAGA.

  7. Moses Herzog

    I thought morons like Vicki McKenna tended to congregate in the south USA:
    https://www.jsonline.com/story/news/2020/08/28/mckennas-rant-kenosha-protests-prompts-madison-firm-pull-ads/5659749002/

    These McKenna types are on our local radio all the time here. That’s why “Joe Exotic” was a local fixture here decades before his Netflix fame. Okie TV journalists discussed “Joe Exotic” with reverence and smiles like they were discussing Fred Rogers or their older uncle dozing off on the sofa during Thanksgiving.

      1. Moses Herzog

        @ pgl
        I am a little reticent to mention this, as I try to be very careful the sources and links I provide on this blog. Substantive links is one of the ways I try to contribute to, and be a positive contributor on this blog. I try not to muddy the water up too much (I can hear Menzie groaning reading this as he thinks of my drunk YT music links). But I glance around on Reddit intermittently. There are two videos making the rounds over there, they may in fact be the same video, but they appear to be the same event captured from different angles. They claim it is Kyle Rittenhouse getting in a physical fist-fight style altercation—with a young girl. The videos are short (wobbly frame as cam is unsteady) and don’t provide much context. However, it doesn’t take much imagination to think this is a young man who thought he could “prove his manhood” by finding an easy target. (Perhaps similar to faking tripping over your own ankles and waiting for blacks to approach close with a gun in your hand).

        If this video is legit, I don’t have much doubt local Kenosha law enforcement or the Kenosha DA’s office (FBI??) will get their hands on this video.

        I normally don’t share these type things on Menzie and Jim’s blog, as the sourcing for that is very poor, but it just had some kind of intuitive feeling of legitimacy to it, I thought it was worth sharing here. I can put the video link here, but I think Menzie would (probably rightfully) filter that because of the violence.

        1. pgl

          “They claim it is Kyle Rittenhouse getting in a physical fist-fight style altercation—with a young girl.”

          This kid was certainly a punk but trying to beat up on a young girl? So Trumpian.

  8. pgl

    Are all of the Trump women utter bimbos?

    https://talkingpointsmemo.com/news/lara-trump-trump-rnc-white-house-speech

    Trump campaign adviser Lara Trump defended the mostly maskless crowd who attended President Trump’s Republican National Convention speech last week amid concerns that it will prove to be a COVID-19 superspreader event, during an interview on “Fox News Sunday.” When pressed on the President delivering his acceptance speech on the South Lawn of the White House to an audience of more than 1,500 people who weren’t practicing social distancing and largely flouted masks, Trump insisted that “we always encourage people to follow the guidelines and do what they think is best for themselves.” “So, we always have masks available. We encourage people to use them,” Trump said. We always have hand sanitizer available. And we encourage people to spread themselves out.” Trump then suggested that supporters of the President can’t help but want to get physically closer to him. “But I think you know as it always works out — people always rush towards the front of the stage,” Trump said. “They want to be around this president. They pack themselves in.” Trump argued that at a certain point “we all have to recognize that people want to get back to normal.”

    No they were not following the guidelines at all. That’s the damn point. And WTF is this wanting to get close to Trump?

    But what makes this bimbo a bimbo is the line about getting back to normal. Did Herman Cain get back to normal? Oh wait – he got COVID-19 and died. I want to see in a few weeks how many of these Trump sycophants catch this virus.

  10. Moses Herzog

    Can someone explain something to me?? Now, I am not asking about ANOVA, I have a very rough idea of what it is, and was thinking it was a relatively basic concept in econometrics (or stats if you prefer). But when I look at a slightly older version of Wooldridge’s book and do a search for ANOVA, I cannot find it anywhere, and I even looked in the glossary and didn’t find it there. Am I going nuts or is there some reason why it wouldn’t be mentioned in the text??

  11. Moses Herzog

    The first thing that I EVER remember agreeing with supreme jack-A$$ Peter Wallison on:
    https://www.realclearpolitics.com/articles/2020/01/15/reagan_trump_have_more_in_common_than_attacks_on_gadhafi_soleimani_142146.html

    Of course Nixon and Reagan’s “war on drugs” was just an excuse to imprison blacks, it was never a sincere intention at lowering crime or even decreasing drug usage.
    https://www.vox.com/2016/3/29/11325750/nixon-war-on-drugs

    If Reagan was that worried about drugs he would have told his 2nd wife to stop popping pills all day.
    https://www.washingtonpost.com/archive/lifestyle/1992/04/30/patti-davis-says-mother-popped-pills/abc9ac5a-7838-41a3-a587-9f6dc32030c6/

  12. spencer

    Never forget, Ronald Reagan, the president that took the US from the world’s largest creditor nation to the world’s largest debtor nation.

    US multinational corporations have long followed a practice of borrowing in the foreign currency to finance foreign direct investment. That way the foreign asset is offset by a foreign liability so currency swings will have no impact on the balance sheet. As they pay-off the foreign debt they offset it by depreciating the foreign asset. Once the loan is paid-off and the asset is depreciated to zero their books will show zero foreign investment. But the asset ( a manufacturing plant for example) still exist and earns a profit. So the corporate books and the US balance of payments shows profits from a foreign investment that no longer exist. on paper at least. I have to believe that this practice plays a major role in the balance of payment data you are reporsting.

    1. macroduck

      There is a distortion in the accounts due to firms’ FX strategies. There is a further distortion as result of tax strategies, at times referred to as “dark matter’. I don’t know which is larger, but in the tech and drug sectors, “dark matter” accounts for a very large part of total investment and payment flows, all in service of avoiding taxes. Trump’s tax “reform” did little to change those distortions.

      Which means that the oddities in the U.S. investment position relatve to the rest of the world may be based mostly on accounting fictions. Yes, U.S. international investment tends to be in various forms of equity, while the rest of the world’s investment in the U.S. tends to be in debt, which yields less. However, the reported size of U.S. holdings is smaller than the actual (as spencer notes) while the inflow of payments is distorted by transfers of intellectual property to Ireland and other tax havens (as Brad Setzer notes https://www.cfr.org/blog/dark-matter-soon-be-revealed), so that drawing conclusions based on the reported data can lead to serious misunderstanding.

      In short, the books are cooked.

  13. pgl

    Did Bruce Hall hack the Twitter account of the late Herman Cain?

    https://talkingpointsmemo.com/news/uhhhh-herman-cains-twitter-claims-covid-is-not-as-deadly-as-mainstream-media-portrayed

    The Twitter account belonging to the late Herman Cain, who died after being infected with COVID-19 in July, issued an eyebrow-raising proclamation on Sunday night. “It looks like the virus is not as deadly as the mainstream media first made it out to be,” the account tweeted with an article by the Western Journal, a right-wing media outlet.

  15. Sebastian

    egregiously (OT):

    Is there any way, short of a total violation in the natural laws of chemistry, virology, immunology, physiology, and so on, that the U.S. won’t have another upswing in coronavirus cases/deaths starting this Fall (or thereabouts)?

    Sebastian

    1. Moses Herzog

      The only thing I see happening to help (in a way that impedes the national numbers) between now and June 2021 on the number of COVID-19 deaths/cases is the plasma injections/sharing from people who have already been infected. The reason I say June 2021 is that is my earliest/best case scenario on when an efficacious vaccine would be ready on a mass scale. And I would not be surprised at all if it’s longer than that.
      https://www.mayoclinic.org/tests-procedures/convalescent-plasma-therapy/about/pac-20486440

      If America still had a quality public education system that hadn’t been robbed of funding and resources by Republicans over the last 4 decades, maybe we could count on Americans taking the right personal behaviors. That’s not the world we live in right now, in this moment. Hats off to Mitch, Newt, Ronnie and the boys for F’ing us completely over. Rudolph Giuliani is proud of all of you.

      1. macroduck

        The “Good Judgment” super-forecasters still broadly agree agree with you on timing, but the big time period they are looking at starts in October and runds till March of next year (https://goodjudgment.io/covid-recovery/#1363) and I think the estimates would skew late in that period. Odds for that periods have risen to 62% in the latest week, up 11% from a week earlier, while the next next 6-month period’s odds are put at 29%, down 9% on the week. Has there been a big improvement in the news?

        1. Moses Herzog

          @ macroduck
          My time figure is kinda 75% based on gut instinct and 25% what experts are telling us. And what do I mean by gut instinct?? Well, we have a lot of scientists and government officials now trying to sell us on very early 2021. Now some people will laugh and say “do you think the delivery to market of an efficacious drug is the same as a state construction project?!?!?!?”. Well, no I don’t. But when was the last time you heard of a construction project being finished when they told you it was going to be finished?? We’re being sold lately on January-February of ’21. So I figure add on another 6 months to the date they give us and it’s not gonna be terribly far off.

          That link you gave, “Good Judgement” seems like a good one, I will bookmark that and watch. Bottom line is, other than donald trump bullying the FDA into approval of bleach, which is really a separate deal, I’ll be shocked as hell if they legitimately get it done before the end of January, And I still think Oxford-AstraZeneca is the best bet on coming in first place time wise.
          https://news.yahoo.com/first-american-dosed-oxford-astrazeneca-130050547.html

          https://www.newscientist.com/article/2253415-human-trials-of-oxford-coronavirus-vaccine-have-begun-in-the-us/

          https://www.nbcnews.com/health/health-news/large-trials-oxford-covid-19-vaccine-begin-u-s-n1238887

          macroduck, Our mutual internet friend Mr. Menzie Chinn might appreciate this part of the NBC article:

          ” But Dr. William Hartman, an assistant professor of anesthesiology at UW Health and the University of Wisconsin-Madison School of Medicine and Public Health, doesn’t expect preliminary data until at least Thanksgiving.

          ‘Our obligation is to make sure that in the end, we have a safe and effective vaccine,’ said Hartman, who is the principal investigator for the UW trial.

          The first participant to sign up is UW’s chief quality officer and an emergency medicine physician, Dr. Jeff Pothof. He’s scheduled to get the shot on Wednesday, but is not otherwise involved in the research.

          ‘All of us are just so tired of coronavirus, and I think the vaccine trials are really our best attempt to take offense against the virus,” Pothof said. “I just wanted to be part of that solution.’ “

          Damnded Edgewmuhkated Puh-huds!!!!!

          The name of the drug is “ChAdOx1”, which sometime in the year 2021 MAY become a household name like Clark Kent. Here’s a paper about it:
          https://www.thelancet.com/action/showPdf?pii=S0140-6736%2820%2931604-4

    2. Ulenspiegel

      “Is there any way, short of a total violation in the natural laws of chemistry, virology, immunology, physiology, and so on, that the U.S. won’t have another upswing in coronavirus cases/deaths starting this Fall (or thereabouts)?”

      Most experts assume that in winter the daily cases will increase becasuse many outdoor activities are replaced by indoor activities, indoor the infection is much easier due to aerosoles in rooms without proper ventilation.

      The issue in the USA is not that the case number will increase, the issue is that it may start from a very high value, the USA will reach maximum ICU capacity much earlier than other countries.

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