The U.S. has a large negative NIIP. Should We Worry?

Executive summary

With the United States on its way to running the largest federal budget deficit since the Second World War, there is growing concern about the deteriorating fiscal position of the U.S. government. But there is another measure in which the United States has been running red ink for years. Specifically, the U.S. net international investment position (NIIP), which is essentially the U.S. balance sheet with the rest of the world, deteriorated to -$13.0 trillion in the second quarter. The United States has increasingly become a net borrower from the rest of the world with a growing gap between American holdings of foreign assets and foreign holdings of U.S. assets. Although most observers do not pay much attention to the deteriorating NIIP of the United States, should we be worried about its nosedive in recent years?

Government Debt and the NIIP: Lots of red ink

With 11 months of fiscal year (FY) 2020 already in the books, the federal government has racked up a record $3 trillion worth of deficits. Moreover, the Congressional Budget Office (CBO) projects that the federal government will incur annual deficits of $1 trillion or more every year through at least 2030 (Figure 1). This red ink in the government’s fiscal accounts will push debt held by the public to more than 100% starting in FY 2022, the highest ratio since the end of the Second World War. The deteriorating fiscal position of the U.S. government has led to significant concern among some observers, which we addressed in a series of reports earlier this year.

Download the full article