New York Fed warns about $69 trillion foreign investment 'burden' on U.S. economy | Fortune

Overseas investors hold nearly $69 trillion in U.S. financial assets, including Treasury bonds, S&P 500 stocks, and direct stakes in American companies. U.S. investors hold $41 trillion in foreign assets, creating a $28 trillion net international investment position deficit. For decades, the U.S. benefited from a rate of return advantage, earning enough on overseas investments to offset what it paid to foreign asset holders. In 2019, the U.S. collected $260 billion more in investment income than it sent abroad. In recent years, net investment income has hovered near zero, as asset valuations and rising interest rates have contributed to larger capital outflows and reduced returns on overseas holdings.

"Overseas investors-from national governments and sovereign wealth funds to pensions and private institutions-currently hold nearly $69 trillion in U.S. financial assets, Fed economists wrote in a blog post published Monday. This includes Treasury bonds, S&P 500 stocks, and direct stakes in American companies. U.S. investors, meanwhile, hold $41 trillion in foreign assets. The gap between those two figures comes out to $28 trillion, representing the country's net international investment position, now deeply in the red."

"For a long time, the U.S.'s status as a net debtor didn't matter much, largely because American investors earned enough on their overseas investments to compensate for the amount the country had to pay internationally to asset-holders. The Fed researchers called this the U.S. "rate of return advantage." In 2019, for example, the U.S. collected $260 billion more in investment income than it sent abroad."

"Over the last few years, however, that surplus-and the exorbitant privilege the U.S. had as a net debtor-has effectively evaporated, as net incomes have hovered close to zero for the past two years, according to the Fed. The culprits are varied, ranging from booming U.S. asset valuations and rising interest rates, but the result is the same: Larger and larger amounts of capital are leaving the U.S., and domestic investors are now barely breaking even on those losses with their overseas bets."

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