US buyers put cash in property of different international locations, together with “portfolio funding” which focuses on possession of shares and bonds with no administration curiosity, and “overseas direct funding” which is proudly owning sufficient of a overseas firm to have a administration curiosity. Conversely, overseas buyers put cash into US greenback property within the US economic system. Erin Whitaker and Tiffany Dang of the US Bureau of Financial Evaluation put togethere the newest information in “A Take a look at the U.S. Worldwide Funding Place: Fourth Quarter and Yr 2024” (Survey of Present Enterprise, April 7, 2025).
Right here’s the general image. Simply to be clear, “U.S. Property” doesn’t imply property owned by the US authorities, however as an alternative is the overseas property owned by all US companies and people. Conversely, “U.S. Liabilities” doesn’t imply that it is a debt owed by the US authorities. As a substitute, it’s the sum of the property that what overseas buyers–non-public and public–personal throughout the US economic system. Additionally, discover that the vertical axis right here is being measured in trillions of {dollars}: for perspective, whole US GDP in 2025 can be about $28 trillion. We’re speaking about substantial quantities right here. The hole between US property and US liabilities was about $7 trillion again in 2015, however is now about $26 trillion.
Clearly, US liabilities exceed US property, and the hole is rising. What are the implications of that reality in observe? To get a grip on these points, first have a look at a breakdown of those property and liabilities: first the US possession of foriegn property after which the overseas possession of US property.
There are a number of ways in which these totals for property and liabilities can change over time. If the US inventory market goes up, for instance, then the property of overseas buyers within the US inventory market additionally rise in worth. Certainly, the first motive why “US Liabilities” have risen so sharply, and why the hole between US property and liabilities has elevated a lot, is that the US inventory market has been rising a lot sooner than overseas inventory markets, and the worth of holdings of US property by overseas buyers has risen accordingly.
Different components make a distinction as properly. All of the figures listed below are expressed in {dollars}, so in determining that the overseas investments of US buyers are price, there was an change fee conversion–and shifts in change charges will have an effect on the entire US property.
In some instances, property owned overseas contain a near-term monetary funds; for instance, if a overseas investor owns US Treasury bonds, the investor can be paid curiosity on these bonds. Nonetheless, if a overseas investor owns inventory in a US firm that doesn’t pay dividends, the worth of that inventory can rise and fall with out inflicting a necessity for a fee to that overseas investor.
I’ll focus right here on the returns on direct investments and portfolio investments. As you’ll US buyers holding overseas property have usually earned increased charges of return than overseas buyers holding US property–a state of affairs that the analysis literature calls “exorbitant privilege.”
Right here’s a determine displaying the return on direct investments over time, from a unique Bureau of Financial Evaluation report. The bars present the quantities paid in billions of {dollars}, as measured on the left-hand axis, whereas the traces present the speed of return, measured on the right-hand axis. Clearly, what US buyers are receiving from direct investments overseas is increased than what overseas buyers are receiving.
What concerning the US return on overseas portfolio investments, and converse, the overseas return on US portfolio investments? Carol C. Bertaut, Stephanie E. Curcuru, Ester Faia, Pierre-Olivier Gourinchas provide new measures of “New Proof on the US Extra Return on International Portfolios” in a Federal Reserve dialogue paper (Quantity 1398, November 2024). Lookign at information from 2005-2022, they write:
Portfolio returns play an essential function in world wealth dynamics. A key stylized reality, first established by Gourinchas and Rey (2007a), is that the return on US exterior claims constantly exceeds that on US exterior liabilities, the so-called ‘exorbitant privilege.’ A optimistic extra return helps to stabilize the US exterior asset place and makes US present account deficits extra sustainable … Our first discovering is that the US extra return on portfolio (fairness and bond) property averages a modest 0.5% per yr over the total pattern. It’s considerably increased, averaging 1.7% per yr, once we exclude the pandemic interval (2020-22).
Trying on the figures above, the overseas portfolio funding in US property is about $17 trillion increased than US portfolio funding in overseas property. Utilizing the over-time common of 0.5% per yr, US buyers could be receiving about $85 billion extra annually from their portfolio investments than overseas buyers are receiving from their US portfolio investments. If one excludes the pandemic and makes use of the extra frequent 1.7% distinction, the hole in portfolio-related features could be $289 billion per yr.
The basic motive why US buyers in overseas international locations are receiving increased returns is that they’re keen to tackle extra threat. To oversimplify considerably, you’ll be able to think about overseas buyers placing cash into bonds issued by the US Treasury and by huge company, whereas US buyers usually tend to be searching for out funding with each higher threat and alternatives for development.
These figures counsel some reorientation of how one thinks about “worldwide commerce. As yet one more Bureau of Financial Evaluation press launch stories (February 5, 2025), the US economic system had a commerce deficit in items of $1,211 billion in 2024. This quantity has been the main focus of the tariffs that President Trump has introduced. Nonetheless, the US economic system runs a commerce surplus in commerce of providers, totalling $293 billion in 2024. (Though the US commerce deficit in items is taken, not less than in White Home political circles, to be full proof of unfair commerce boundaries by different international locations in opposition to US exported items, the US commerce surplus in items, against this, has no implications in any respect as as to if the US is imposing unfair commerce boundaries in providers with regard to US imported items. Go determine.)
Furthermore, funds throughout borders because of direct and portfolio funding additionally favor the US by a number of hundred billion {dollars}. Furthermore, I ought to emphasize that a wide range of different funds go into what is known as the “present account steadiness,” the broadest measure that mixes worldwide funds associated to commerce in good and providers, in addition to foriegn investments, and likewise contains remittances that immigrants ship to their dwelling international locations, funds made by overseas insurance coverage firms, funds between governments, and different classes. For many who need the total account of the present account steadiness, a baseline place to begin is “U.S. Worldwide Transactions, 4th Quarter and Yr 2024.”
How a lot ought to People fear concerning the massive and rising hole between US property and US liabilities? Trying again about 20 years, the hole–that’s, the “web overseas asset place”–was a lot smaller: again round 2005, the hole was about 15% of US GDP, whereas now it’s greater than 90% of US GDP. Twenty years in the past, the hole was a lot smaller, in order that that when the online overseas asset place turned considerably bigger and extra damaging in a given yr, this variation was absolutely offset by the upper returns being earned by US buyers holding overseas property. This was “exorbitant privilege.”
However now, thanks largely to overseas possession of US property and the very robust rise in US inventory markets, the online overseas asset place has grow to be enormously extra damaging at $28 trillion. The speed of return earned by US buyers with overseas property continues to exceed that of overseas buyers holding US property, however that $28 trillion hole is so massive that the extra funds acquired by US buyers in a given yr now not cowl the more and more damaging web overseas asset place. Thus, Andrew Atkeson, Jonathan Heathcote and Fabrizio Perri have a analysis paper forthcoming within the American Financial Evaluate known as “The Finish of Privilege: A Reexamination of the Internet International Asset Place of the US.”
As Atkeson, Heathcote, and Perri level out, this reality could alter how you concentrate on the big features in US inventory markets. If US shares are primarily owned by US residents, then features within the US inventory market redound to the good thing about People. However the rising overseas possession of US inventory markets means that features in US shares are growing flowing to overseas buyers, as an alternative. Worldwide diversification of investments has each features and tradeoffs.
US buyers put cash in property of different international locations, together with “portfolio funding” which focuses on possession of shares and bonds with no administration curiosity, and “overseas direct funding” which is proudly owning sufficient of a overseas firm to have a administration curiosity. Conversely, overseas buyers put cash into US greenback property within the US economic system. Erin Whitaker and Tiffany Dang of the US Bureau of Financial Evaluation put togethere the newest information in “A Take a look at the U.S. Worldwide Funding Place: Fourth Quarter and Yr 2024” (Survey of Present Enterprise, April 7, 2025).
Right here’s the general image. Simply to be clear, “U.S. Property” doesn’t imply property owned by the US authorities, however as an alternative is the overseas property owned by all US companies and people. Conversely, “U.S. Liabilities” doesn’t imply that it is a debt owed by the US authorities. As a substitute, it’s the sum of the property that what overseas buyers–non-public and public–personal throughout the US economic system. Additionally, discover that the vertical axis right here is being measured in trillions of {dollars}: for perspective, whole US GDP in 2025 can be about $28 trillion. We’re speaking about substantial quantities right here. The hole between US property and US liabilities was about $7 trillion again in 2015, however is now about $26 trillion.
Clearly, US liabilities exceed US property, and the hole is rising. What are the implications of that reality in observe? To get a grip on these points, first have a look at a breakdown of those property and liabilities: first the US possession of foriegn property after which the overseas possession of US property.
There are a number of ways in which these totals for property and liabilities can change over time. If the US inventory market goes up, for instance, then the property of overseas buyers within the US inventory market additionally rise in worth. Certainly, the first motive why “US Liabilities” have risen so sharply, and why the hole between US property and liabilities has elevated a lot, is that the US inventory market has been rising a lot sooner than overseas inventory markets, and the worth of holdings of US property by overseas buyers has risen accordingly.
Different components make a distinction as properly. All of the figures listed below are expressed in {dollars}, so in determining that the overseas investments of US buyers are price, there was an change fee conversion–and shifts in change charges will have an effect on the entire US property.
In some instances, property owned overseas contain a near-term monetary funds; for instance, if a overseas investor owns US Treasury bonds, the investor can be paid curiosity on these bonds. Nonetheless, if a overseas investor owns inventory in a US firm that doesn’t pay dividends, the worth of that inventory can rise and fall with out inflicting a necessity for a fee to that overseas investor.
I’ll focus right here on the returns on direct investments and portfolio investments. As you’ll US buyers holding overseas property have usually earned increased charges of return than overseas buyers holding US property–a state of affairs that the analysis literature calls “exorbitant privilege.”
Right here’s a determine displaying the return on direct investments over time, from a unique Bureau of Financial Evaluation report. The bars present the quantities paid in billions of {dollars}, as measured on the left-hand axis, whereas the traces present the speed of return, measured on the right-hand axis. Clearly, what US buyers are receiving from direct investments overseas is increased than what overseas buyers are receiving.
What concerning the US return on overseas portfolio investments, and converse, the overseas return on US portfolio investments? Carol C. Bertaut, Stephanie E. Curcuru, Ester Faia, Pierre-Olivier Gourinchas provide new measures of “New Proof on the US Extra Return on International Portfolios” in a Federal Reserve dialogue paper (Quantity 1398, November 2024). Lookign at information from 2005-2022, they write:
Portfolio returns play an essential function in world wealth dynamics. A key stylized reality, first established by Gourinchas and Rey (2007a), is that the return on US exterior claims constantly exceeds that on US exterior liabilities, the so-called ‘exorbitant privilege.’ A optimistic extra return helps to stabilize the US exterior asset place and makes US present account deficits extra sustainable … Our first discovering is that the US extra return on portfolio (fairness and bond) property averages a modest 0.5% per yr over the total pattern. It’s considerably increased, averaging 1.7% per yr, once we exclude the pandemic interval (2020-22).
Trying on the figures above, the overseas portfolio funding in US property is about $17 trillion increased than US portfolio funding in overseas property. Utilizing the over-time common of 0.5% per yr, US buyers could be receiving about $85 billion extra annually from their portfolio investments than overseas buyers are receiving from their US portfolio investments. If one excludes the pandemic and makes use of the extra frequent 1.7% distinction, the hole in portfolio-related features could be $289 billion per yr.
The basic motive why US buyers in overseas international locations are receiving increased returns is that they’re keen to tackle extra threat. To oversimplify considerably, you’ll be able to think about overseas buyers placing cash into bonds issued by the US Treasury and by huge company, whereas US buyers usually tend to be searching for out funding with each higher threat and alternatives for development.
These figures counsel some reorientation of how one thinks about “worldwide commerce. As yet one more Bureau of Financial Evaluation press launch stories (February 5, 2025), the US economic system had a commerce deficit in items of $1,211 billion in 2024. This quantity has been the main focus of the tariffs that President Trump has introduced. Nonetheless, the US economic system runs a commerce surplus in commerce of providers, totalling $293 billion in 2024. (Though the US commerce deficit in items is taken, not less than in White Home political circles, to be full proof of unfair commerce boundaries by different international locations in opposition to US exported items, the US commerce surplus in items, against this, has no implications in any respect as as to if the US is imposing unfair commerce boundaries in providers with regard to US imported items. Go determine.)
Furthermore, funds throughout borders because of direct and portfolio funding additionally favor the US by a number of hundred billion {dollars}. Furthermore, I ought to emphasize that a wide range of different funds go into what is known as the “present account steadiness,” the broadest measure that mixes worldwide funds associated to commerce in good and providers, in addition to foriegn investments, and likewise contains remittances that immigrants ship to their dwelling international locations, funds made by overseas insurance coverage firms, funds between governments, and different classes. For many who need the total account of the present account steadiness, a baseline place to begin is “U.S. Worldwide Transactions, 4th Quarter and Yr 2024.”
How a lot ought to People fear concerning the massive and rising hole between US property and US liabilities? Trying again about 20 years, the hole–that’s, the “web overseas asset place”–was a lot smaller: again round 2005, the hole was about 15% of US GDP, whereas now it’s greater than 90% of US GDP. Twenty years in the past, the hole was a lot smaller, in order that that when the online overseas asset place turned considerably bigger and extra damaging in a given yr, this variation was absolutely offset by the upper returns being earned by US buyers holding overseas property. This was “exorbitant privilege.”
However now, thanks largely to overseas possession of US property and the very robust rise in US inventory markets, the online overseas asset place has grow to be enormously extra damaging at $28 trillion. The speed of return earned by US buyers with overseas property continues to exceed that of overseas buyers holding US property, however that $28 trillion hole is so massive that the extra funds acquired by US buyers in a given yr now not cowl the more and more damaging web overseas asset place. Thus, Andrew Atkeson, Jonathan Heathcote and Fabrizio Perri have a analysis paper forthcoming within the American Financial Evaluate known as “The Finish of Privilege: A Reexamination of the Internet International Asset Place of the US.”
As Atkeson, Heathcote, and Perri level out, this reality could alter how you concentrate on the big features in US inventory markets. If US shares are primarily owned by US residents, then features within the US inventory market redound to the good thing about People. However the rising overseas possession of US inventory markets means that features in US shares are growing flowing to overseas buyers, as an alternative. Worldwide diversification of investments has each features and tradeoffs.
