Research Highlights Podcast
August 13, 2025
Understanding the US net foreign asset position
Andrew Atkeson discusses changes in how much the United States is indebted to the rest of the world.
Source: SeanPavonePhoto
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For decades, the United States enjoyed what some called an exorbitant privilege—the ability to spend more than it earned without accumulating much debt to the rest of the world. But that privilege has ended.
In a paper in the 蝌蚪网 Review, authors , , and found that the United States started accumulating significant liabilities to foreigners after the Great Recession.
The researchers say that a surge in the value of US corporations relative to companies in other countries is the driver of this development. Due to large international capital flows in recent decades, foreign investors now own about 40 percent of US corporate equity, while US investors also hold a large amount of foreign companies in their portfolio. When American companies become more profitable and their stock prices soar, much of the gains flow overseas, without a corresponding flow to US investors from foreign companies, which erodes the net foreign asset position of the United States.
Atkeson recently spoke with Tyler Smith about how to interpret the US net foreign asset position and what its recent swings mean for American households.
The edited highlights of that conversation are below, and the full interview can be heard using the podcast player.
Tyler Smith: What is the net foreign asset position of a country?
Andrew Atkeson: The idea is that the trade balance and the net foreign asset position kind of fit together. Normally, you learn that the current account, which is close to the trade balance, is the difference between the saving that a country does and its investment. Then, over time, when there's a gap between how much people in the country save and how much they invest (i.e. they're either sending money abroad, investing abroad, and gaining assets abroad or if they're saving less than they're investing), foreigners are sending money into the country, which becomes a debt or a liability of the country. That net position—the value of what Americans own abroad compared to the value of what foreigners own in the US—is called our net foreign asset position.
Smith: How were the movements in the US net foreign asset position previously understood by economists?
Atkeson: During the 1980s and 1990s and even into the 2000s, there was a concern that if the US kept running current account deficits, they might become deeply indebted to the rest of the world, and that might become a problem. But it seemed almost like a magical force going on that even though we kept running a current account deficit, we didn't really accumulate liabilities to foreigners—our net foreign asset position did not deteriorate. A number of people who might have been resentful of this called this an exorbitant privilege that the United States had, that somehow we could magically spend more than we earned or save less than we invested without running up debt. There were various thoughts about why that might come about. But the economic research in the early 2000s was pointing to the idea that the way the United States was pulling this off was that we would make equity investments abroad, which tend to earn a high average rate of return, and borrow in bonds. And so the thought was that what the United States was doing was consistently earning a higher rate of return on its investments abroad than it was paying to finance those investments.
Smith: What made you think that it was time to reexamine the US net foreign asset position?
Atkeson: To a large extent, the Bureau of Economic Analysis and the Federal Reserve Board made that easy for us. The people who came before us in doing this research, like Hélène Rey and Pierre-Olivier Gourinchas, had to piece together what I would call kind of the income statement in the United States, which would be the economic flows that would include savings, investment, the current account, GDP, etc., and balance sheets, which would be what were the assets that we actually had abroad and what were the assets that foreigners held in the United States. Starting in about 2013 or 2014, the Federal Reserve and the Bureau of Economic Analysis introduced the integrated macroeconomic accounts. So, one factor was that somebody basically handed us data, but the other phenomenon that we thought was particularly interesting is that after the financial crisis of 2008, the wealth of US households that you see in these balance sheets for the integrated macroeconomic accounts were skyrocketing. But at the same time that American households were getting richer and richer, our net foreign asset position was deteriorating rapidly.
Smith: What changed around 2007 to cause the net foreign asset position of the United States to deteriorate?
Atkeson: So, the answer we got from the data in the integrated macroeconomic accounts was kind of different from the conventional view about how the US invested in equity abroad and foreigners invested in US bonds. By the financial crisis of 2008, foreigners’ investments in the United States had evolved to include a lot of equity. So foreigners now earn a very large share of the value of corporate American equity. This is both the equity that's traded publicly on the New York Stock Exchange and through foreign direct investments. So when we think of the US stock market booming, only like 60 percent of that is American wealth, and the other 40 percent is actually foreign wealth. The thing that really struck us in the data is that our liabilities to foreigners, our net foreign asset position, was deteriorating rapidly because the US stock market was booming. And since foreigners owned a lot of US stocks, the value of their claims against us was booming, which for us means we owed them more money. And it wasn't so much that equities around the world boomed; it was that American equities specifically boomed. The US equity boom helped make US households unprecedentedly rich, but it also made foreigners have a lot more valuable claims against us.
When we think of the US stock market booming, only like 60 percent of that is American wealth, and the other 40 percent is actually foreign wealth. So our net foreign asset position was deteriorating rapidly because the US stock market was booming.
Andrew Atkeson
Smith: Why are US companies so much more valuable relative to their international peers?
Atkeson: We probably don't have the final word, but this is something that has been indirectly an area of tremendous interest in research recently, particularly in macroeconomics. You can see in the data on flows that the fraction of the gross value added of American corporations that is flowing to owners of those corporations has grown tremendously in the last 20 to 25 years. How does that happen? A little bit of that is because we've cut corporate taxes, but that's only a little bit. The vast majority of that has been because the share of corporate value added that's paid to workers as compensation for their labor has fallen. In the United States, the share of corporate output that goes to workers has fallen by 8 to 10 percentage points. There's some discussion about the extent to which this has happened abroad, but it hasn't happened in nearly the same way abroad as it has in the US. The deeper question is why? What I gave you is mechanical accounting. If more income goes to owners of corporations, then they become more valuable relative to output. Is that fall in the labor share coming because of, say, monopoly power? Or is it coming because of changes in technology that people associate with the internet revolution? This is an area that is very active research, but our work highlights how, mechanically, those changes in the division of corporate output—how much goes to workers, how much goes to firm owners, how much goes to the government in terms of taxes—end up affecting not only the financial wealth of US households but also our net foreign asset position.
Smith: How would you explain the impact that this may have had on American households? How did this affect them?
Atkeson: Let’s start with an example. If you cut corporate taxes, then the owners of corporations pay less in taxes. Well, if 40 percent of the ownership of US corporations is by foreigners, then foreigners are just paying less in taxes to the Treasury. Similarly, if the rise of profitability of US corporations had come from increased market power, meaning American workers are getting less of the economic pie and owners of corporations are getting more of it, then, again, about 40 percent of those extra profits are going to foreigners. And so, if Americans owned all of American corporations—if we didn't have this foreign investment—we would have debates inside America about the impacts of changes in corporate profits on American workers and on American owners of corporations. It's an argument about distribution within the country. It's a debate that pits one set of Americans against another set of Americans. And sometimes they're the same people. Many people, through their pension funds, own equity in US corporations. And so they can perhaps be on both sides of the debate at the same time. But now that we have these very large cross-border ownership positions, when we ask what is going to be the impact of tariffs on the profitability of US corporations, you have to remind yourself that whatever that impact is, about 40 percent of that is going to end up being on foreigners, to their benefit or to their detriment. That changes the way you analyze a lot of classical questions about policy. It's mechanically a question of who gets the money.
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“The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States” appears in the July 2025 issue of the 蝌蚪网 Review. Music in the audio is by .