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

Michael Shenk |

Research Assistant

Michael Shenk

Michael Shenk was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. His work focused on international topics and housing-market indicators.


Economic Trends

U.S. International Investment Position

Owen F. Humpage and Michael Shenk

The United States has financed its persistent current-account deficits by issuing financial claims—stocks, bonds, bank accounts—to rest of the world. These financial claims essentially entitle the rest of the world to future U.S. output. Since 1982, foreigners have consistently held more claims on the United States than U.S. residents have held on them. Last year, foreigners possessed a net $2.5 trillion in claims against the United States, an amount equal to 19.2 percent of our GDP.

The Commerce Department’s Bureau of Economic Analysis (BEA) estimates the claims that Americans hold on the rest of the world and that foreigners hold on the United States and publishes the data each July as the International Investment Position of the United States. Year-to-year changes in the international investment position reflect both the financing of our current-account deficits and changes in valuation of previously issued, outstanding financial instruments. Valuation changes stem in part from exchange-rate movements. The BEA estimates the value for most of these financial instruments from current market transactions, but direct investments—those involving a management positions in foreign companies—are difficult to update because their worth may reflect firm-specific and intangible characteristics. The BEA values direct investments for the international investment position of the United States using two alternative methods. The current-costs approach measures affiliates’ investments in plant and equipment using the current cost of capital, the purchase of land using price indexes, and changes in inventories using estimates of replacement costs. The market-value approach relies on stock prices of owners’ equity shares.

Valuation changes can have a profound effect on our net international investment position. Between 2002 and 2006, for example, our cumulative current-account deficit totaled nearly $3.2 trillion, but our net international investment position fell by a substantially smaller, $0.6 trillion—from −$1.9 trillion in 2001 to −$2.5 in 2006. The offset stemmed from valuation changes that boosted U.S. claims on foreigners relative to foreign claims on the United States. In part, these favorable valuation changes reflect the dollar’s steep depreciation over this period. Because far more of U.S. claims on foreigners are denominated in foreign currencies than are foreign claims on us, a dollar depreciation raises the dollar value of our assets by more than our liabilities and improves our net international investment position.

Indicative of the growing globalization of financial markets, both U.S. and foreign assets have increased sharply as a share of GDP since the mid-1990s. Since 1995, foreigners have especially increased their holding of official dollar-denominated reserve assets and their investments in private U.S. securities. In 2006, official reserve assets accounted for 18 percent of all foreign claims against the United States, while private securities amounted to 35 percent of the total. Over this same period, U.S. residents have also added substantial amounts of private foreign securities to their portfolios. Private securities now account for 43 percent of all U.S. claims on foreigners and direct investments make up 23 percent.