Meet the Author

Owen F. Humpage |

Senior Economic Advisor

Owen F. Humpage

Owen F. Humpage is a senior economic advisor specializing in international economics in the Research Department of the Federal Reserve Bank of Cleveland. His research focuses on the international aspects of central-bank policies and has appeared in the International Journal of Central Banking, the International Journal of Finance and Economics, and the Journal of Money, Credit, and Banking. Recently, Dr. Humpage co-authored a history of U.S. foreign-exchange operations.

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Meet the Author

Caroline Herrell |


Caroline Herrell

Carrie Herrell was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland.


Economic Trends

Borrow Less, Owe More: The U.S. Net International Investment Position

Owen F. Humpage and Caroline Herrell

The United States has recorded a current-account deficit almost every year since 1982, as U.S. residents have imported more goods and services than they have exported. Over the past two years, the deficit has narrowed substantially. Still, we ended last year deeper in the red than ever before.

America pays for its excess imports by issuing financial claims, such as corporate stocks and bonds, Treasury securities, and bank accounts, to the rest of the world. These financial instruments represent claims on our future output. Since 1986, foreigners have held more claims against U.S. residents than U.S. residents have held against the rest of the world, or—as economists like to say—the United States has had a negative net international investment position.

The net international investment position is not a straight summation of all the financial instruments that we have issued to cover our past current-account deficits. The value of these outstanding claims also changes year-to-year as exchange rates, interest rates, and the prices of the constituent financial instruments rise and fall with market conditions. The sum of all our current-account deficits since 1986, for example, greatly exceeds our net international investment position. The difference—allowing us a bit of imprecision—reflects valuation adjustments that worked in our favor.

Last year, however, the tables turned. The U.S. current-account deficit shrank by $20 billion, which we might have expected to improve our net international investment position, but instead, net foreign claims held against U.S. residents rose by a whopping $1.3 trillion, a 62 percent jump. All of this reflects valuation adjustment. From the end of 2007 through the end of 2008, foreign stock prices fell more than U.S. stock prices, and the dollar appreciated against most major currencies. Hmm, maybe diversifying out of dollar-denominated assets isn’t such a good idea!