no.
Pure International Investment Jobs (NIIP) is a simple accounting concept. The total value of foreign assets owned by Americans in other countries is the total assets of US assets owned by foreigners. A positive number means that the value (but not revenue) of US-owned foreign assets is greater than (but not) of foreign-owned US assets. A negative number means that the value of US-owned foreign assets is less than the value of foreign-owned US assets. More accurate:
What are your international investment positions?
The accumulated value of US-owned financial assets in other countries and the US debt to residents of other countries at the end of each quarter. The difference between assets and liabilities is in the US net international investment positions.
Like the trade deficit, the negative numbers here remind us of the image of inappropriateness and financial disasters. And like the trade deficit, the image is false. Of course, debt can become part of the equation, but that’s not the only one. In fact, foreign holdings of US debt have been declining. Americans are being tested by foreigners.
The butter that NIIP can mislead is to capture only international transactions, not all transactions, just like trade deficits. These transactions are just a small portion of the total US financial markets. Concenkory, negatively, may seem like more and more countries are becoming foreigners. But reality is the exact opposite.
The US Treasury has recently released a report on foreign holdings of US financial securities. Figure 2 has been deleted. Decompose foreign and domestic holdings by type. One thing we see is that the share of foreign-owned US assets has generally declined flat/moderately since around 2009. But what about this when NIIP drops in the same period?
The answer is simple: bown foreigners and America want to invest in America. Foreigners invest in the US, so it appears in NIIP. However, the US also wants to invest more in the US than overseas, so those investments will not appear in NIIP. NIIP is decreasing as the negative side of the equation becomes more negative and the positive side does not rise very quickly. However, because America is a productive place, the value of US assets is growing. Americans are wealthier than Foligner and are buying more assets. Therefore, NIIP will fall, but the share of US-owned assets remains the same. The NIIP here is our strength, not our weakness.
For demonstration purposes, assume the following:
US assets owned by US: $800 billion foreign-owned US assets: $200 billion total users: $100 million US foreign assets: $1 billion
The figures show that the US niip Woold is $100 billion ($100 billion – $2 billion) and foreign holdings of US securities are 20% of the total. Now let’s assume that the total time has passed. And there are these numbers.
US assets owned by US: $96 billion foreign-owned US assets: Total of $240 billion: US assets owned by US: $12 billion foreign assets
After this period, the US NIIP reached -$14 billion ($1 billion -$2.4 billion), but foreign holdings remain 20% of US securities. Americans chose to invest their money in the United States rather than overseas. Constently, Niip falls, but that’s because America is choking to keep their money domestically!
Paradoxically, if you want to reduce your NIIP, you have to convince the US that you will increase your investment overseas, or persuade foreigners to order them to invest in the US. Of course, one way to do that is to reduce America’s competitiveness through “economic statecraft” (or “economic nationalism”? But one way to kill spiders is to burn the house. These tariffs are far more harmful than good.
The value is all good, but returns are also a problem. Here we see another paradox. The return on US foreign investment is higher than the foreign returns on US investment. In other words, Americans make more foreign investments than foreigners use their investments. why? Because once again about how great America is. American securities are relatively safe compared to other parts of the world. So foreigners want to keep their money safe and invest here. Americans also use their safety to invest heavily in America. However, they want bread of interest overseas, which results in higher returns. Please see here.
Fear is a mind killer. Fear shuts down evaluation thinking and leads to disappearance. And fear comes from the lack of minors. Both the trade deficit and the NIIP have brought much fear to those who don’t understand them. They see negative signs and assume negative outcomes. The fear of foreigners having everything is not essential to their minds. I have written about these fear inversions before. They are now irrational, just as they were in the 1980s.
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PS: Another interesting note from its Treasury Department: US government debt is less owned by foreigners. Foreigners choose corporate debt and fairness. This makes us even more skeptical that simply balancing the federal budget would eliminate the trade deficit.
[1] A brief note: Trade deficits and NIIP are related, but not identical. The trade deficit is sponsored. NIIP is in stock.
