The United States as a Net Debtor Nation: Overview of the International Investment Position

The United States as a Net Debtor Nation:
Overview of the International Investment Position
Updated July 22, 2008
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division



The United States as a Net Debtor Nation: Overview of
the International Investment Position
Summary
The international investment position of the United States is an annual measure
of the assets Americans own abroad and the assets foreigners own in the United
States. The net position, or the difference between the two, sometimes is referred to
as a measure of U.S. international indebtedness. Although this designation is not
strictly correct, the net international investment position does reveal the difference
between the total assets Americans own abroad and total amount of assets foreigners
own in the United States. These assets generate flows of capital into and out of the
economy that have important implications for the value of the dollar in international
exchange markets. Some Members of Congress and some in the public have
expressed concerns about the U.S. net international investment position because of
the role foreign investors are playing in U.S. capital markets and the potential for
large outflows of income and services payments. Some observers also argue that the
U.S. reliance on foreign capital inflows leaves the economy vulnerable to financial
crises. This report will be updated as events warrant.



Contents
Background ......................................................1
Valuing Investments...............................................3
Investment Patterns................................................5
International Investment: Sources and Economic Impact...................9
Congressional Response...........................................13
List of Figures
Figure 1. U.S. Direct Investment Abroad: Estimated Value of Accumulated
Position, 1982-2007...........................................4
Figure 2. Foreign Direct Investment in the United States: Estimated Value of
Accumulated Position, 1982-2007................................4
Figure 3. Foreign Official and Private Investment Positions in the
United States, 1994-2007........................................6
Figure 4. Foreign Official and Private Investment Positions in the
United States, 1994-2007.......................................7
Figure 5. U.S. and Foreign Investment Position, By Major Component, 2007..8
Figure 6. U.S. Income Receipts and Payments on U.S.-Owned Assets Abroad
and on Foreign-Owned Assets in the United States, 2007..............12
List of Tables
Table 1. U.S. Net International Investment Position......................1
Table 2. U.S. International Investment Status............................6
Table 3. Saving and Investment in Selected Countries and Areas; 1994-2001
and 2007...................................................10
Table 4. Estimates of Wealth in the United States, 2006
Current-Cost, Gross Stock Values................................13



The United States as a Net Debtor Nation:
Overview of the International
Investment Position
Background
The U.S. international investment position represents the accumulated value of
U.S.-owned assets abroad and foreign-owned assets in the United States measured
on an annual basis at the end of the calendar year. Some observers refer to the net
of this investment position (or the difference between the value of U.S.-owned assets
abroad and the value of foreign-owned assets in the United States) as a debt, or
indicate that the United States is in a net debtor position, because the value of
foreign-owned assets in the United States is greater than the value of U.S.-owned
assets abroad. In fact, the nation’s international investment position is not a measure
of the nation’s indebtedness similar to the debt borrowed by some developing
countries, but it is an accounting of assets. By year-end 2007, the latest year for
which data are available, the overseas assets of U.S. residents totaled approximately
$17 trillion, while foreigners had acquired about $20 trillion in assets in the United
States, with direct investment measured at historical cost. As a result, the U.S. net
international investment position was about $2.6 trillion in the negative with direct
investment measured at historical cost, as indicated in Table 1.
Table 1. U.S. Net International Investment Position
(in billions of dollars)
Type of Investment2004200520062007
Net international investment position of the United States:
With direct investment at current cost-2,245.4-1,925.1-2,225.8-2,441.8
With direct investment at market value-2,355.8-1,850.9-1,849.3-1,727.5
With direct investment at historical cost-2,470.7-2,129.9-2,399.4-2,653.6
Financial derivatives57.959.883.5
U.S.-owned assets abroad:
With direct investment at current cost9,340.611,961.614,381.317,640.0
With direct investment at market value10,204.612,947.815,900.019,455.1
With direct investment at historical cost8,893.311,445.313,900.017,098.4
Financial derivatives1,190.01,239.02,284.6
U.S. official reserve assets189.6188.0219.9277.2
U.S. Government assets, other83.177.572.294.5
U.S. private assets:
With direct investment at current cost9,068.010,506.012,850.314,983.7
With direct investment at market value9,932.311,492.214,368.916,798.8
With direct investment at historical cost8,620.79,989.712,369.014,442.1
Direct investment abroad:
At current cost2,498.52,651.72,936.03,332.8



Type of Investment2004200520062007
At market value3,362.83,638.04,454.65,148.0
At historical cost2,051.22,135.52,454.72,791.3
Foreign securities3,545.44,329.35,604.56,648.7
Bond s 985.0 1 ,011.6 1 ,275.5 1 ,478.1
Corporate stocks2,560.43,317.74,329.05,170.6
U.S. claims by US nonbanking concerns793.61,018.51,163.11,176.0
U.S. claims reported by US banks2,230.52,506.53,146.73,826.2
Foreign-owned assets in the United States:
With direct investment at current cost11,586.113,886.716,607.120,081.8
With direct investment at market value12,560.714,798.717,749.221,182.6
With direct investment at historical cost11,364.113,575.216,299.419,752.0
Financial derivatives1,132.11,179.22,201.1
Foreign official assets in the United States2,011.92,306.32,825.63,357.0
Foreign private assets:
With direct investment at current cost9,574.210,448.312,602.314,543.7
With direct investment at market value10,548.811,360.313,744.415,644.5
With direct investment at historical cost 9,352.210,136.812,294.614,214.0
Direct investment in the United States:
At current cost1,742.71,906.02,151.62,422.8
At market value2,717.42,818.03,293.73,523.6
At historical cost1,520.71,594.51,843.92,093.0
U.S. Treasury securities561.6643.8567.9734.8
U.S. other securities3,995.54,353.05,372.46,132.4
Corporate and other bonds2,035.12,243.12,824.93,299.3
Corporate stocks1,960.32,109.92,547.52,833.1
U.S. currency272.0280.4282.6272.0
U.S. liabilities by U.S. nonbanking concerns600.2658.2797.5959.5
U.S. liabilities reported by U.S. banks2,402.22,606.93,430.34,022.2
Source: Nguyen, Elena L., The International Investment Position of the United States at Yearend
2007, Survey of Current Business, July 2008. p. 9.
Foreign investors who acquire U.S. assets do so at their own risk and accept the
returns accordingly, unlike the debt owed by developing countries where debt service
payments are guaranteed in advance. The returns on the assets in the investment
position, except for bonds, are not guaranteed and foreign investors gain or lose on
them in the same way as U.S. domestic investors. As Table 1 indicates, these
investments include such financial assets as corporate stocks and bonds, government
securities, and direct investment1 in businesses and real estate. The value of these
assets, measured on an annual basis, can change as a result of purchases and sales
of new or existing assets; changes in the financial value of the assets that arise
through appreciation, depreciation, or inflation; changes in the market values of


1 The United States defines foreign direct investment as the ownership or control, directly
or indirectly, by one foreign person (individual, branch, partnership, association,
government, etc.) of 10% or more of the voting securities of an incorporated U.S. business
enterprise or an equivalent interest in an unincorporated U.S. business enterprise. 15 CFR
§ 806.15 (a)(1). Similarly, the United States defines direct investment abroad as the
ownership or control, directly or indirectly, by one person (individual, branch, partnership,
association, government, etc.) of 10% or more of the voting securities of an incorporated
business enterprise or an equivalent interest in an unincorporated business enterprise. 15
CFR § 806.15 (a)(1).

stocks and bonds; or changes in the value of currencies. The Department of
Commerce also uses three different methods for valuing direct investments that yield
roughly comparable estimates for the net position, although the three methods do
provide estimates on U.S. direct investment abroad and foreign direct investment that
can be considerably different at times.
Valuing Investments
The Department of Commerce provides updated estimates on the nation’s
international investment position each year, typically in July, based on data for the
previous year through the end of the calendar year. Except for direct investment, all
of the accounts in the international investment position are estimated directly by the
Department of Commerce’s Bureau of Economic Analysis (BEA) relative to readily
observable market prices. For example, the value of positions in portfolio
investments (securities), gold, loans, currencies, and bank deposits can be directly
estimated by the BEA based on the face values or market prices of recent
transactions.
Estimating the value of direct investments, however, presents a number of
challenges. According to the Department of Commerce, these challenges arise
because foreign direct investments, “typically represent illiquid ownership interests
in companies that may possess many unique attributes — such as customer base,
management, and ownership of intangible assets — whose values in the current
period are difficult to determine, because there is no widely accepted standard for
revaluing company financial statements at historical cost into prices of the current
period.”2
As a result, the Department of Commerce estimates the U.S. international
investment position in three ways, reflecting three different accounting methods for
estimating the value of direct investments: historical cost; current cost; and market
value. Initially, direct investments are valued at historical cost, or the cost at the time
of the investment. This historical cost value can become outdated because it is not
updated to account for changes in the value of an investment through appreciation,
or through internal growth and expansion, or through changes in various intangible
assets. The current cost approach estimates the value of capital equipment and land
at their current replacement cost using general cost indexes, and inventories, using
estimates of their replacement cost, rather than at their historical cost. The third
measure, market value, uses indexes of stock market prices to revalue the owners’
equity share of direct investment.
For the most part, the current cost and historical cost estimates have tracked
closely together for U.S. direct investment abroad and for foreign direct investment
in the United States, as indicated in Figures 1 and 2, respectively. These two
measures of direct investment demonstrate a steady increase in the value of the
investments over the 26-year period from 1982 to 2007. The market value estimate


2 Nguyen, Elena L., “The International Investment Position of the United States at Yearend

2007,” Survey of Current Business, July 2008. p. 9.



Figure 1. U.S. Direct Investment Abroad: Estimated Value
of Accumulated Position, 1982-2007
Billions of dollars
$6, 000
$5, 500
$5, 000
$4, 500
$4, 000
$3, 500
$3, 000
$2, 500
$2, 000
$1, 500
$1, 000
$500
$0
1982 1985 1988 1991 1994 1997 2000 2003 2006
Current costMarket valueHistorical cost
Source: Department of Commerce
Figure 2. Foreign Direct Investment in the United States:
Estimated Value of Accumulated Position, 1982-2007


Billions of dollars
$4, 000
$3, 500
$3, 000
$2, 500
$2, 000
$1, 500
$1, 000
$500
$0
1982 1985 1988 1991 1994 1997 2000 2003 2006
Current costMarket valueHistorical cost
Source: Department of Commerce
of direct investment, however, displays a markedly different pattern. These estimates
spiked during the rapid runup in stock market values in the 1990s and then dropped
sharply when market values declined at the end of the 1990s. The market value
estimates rose sharply again in 2003 through 2007, as the rebound in stock market
values pushed up the estimated market value of firms. As a result, the market value
of U.S. direct investment abroad was estimated at $5.1 trillion in 2007, pushing the
overall U.S. position to $19.5 trillion, compared with an estimate of the historical

cost of $2.8 trillion for foreign direct investment in the United States and an overall
position of $17.1 trillion and $3.3 trillion for current cost direct investment position
and $15.4 trillion position for current cost estimate. Since the early 1980s, the annual
value of foreign direct investment in the United States has been greater at times than
the annual value of U.S. direct investment abroad, but the accumulated value of U.S.
direct investment abroad, or the position, has continuously been valued higher.
Investment Patterns
Foreign direct investment in U.S. businesses surged in the mid-1980s and has
at times outpaced the annual amount of U.S. direct investment abroad. For various
reasons, U.S. direct investment abroad and foreign direct investment in the United
States have tended to track together so that the annual flows increase or decrease
somewhat in tandem,3 except in 2005, when U.S. direct investment abroad dropped
sharply as U.S. parent firms reduced the amount of reinvested earnings going to their
foreign affiliates for distribution to the U.S. parent firms in order to take advantage
of one-time tax provisions in the American Jobs Creation Act of 2004 (P.L. 108-
357). Between 2001 and 2006, U.S. direct investment outflows have been greater
than similar inflows. As a whole, however, foreign investment among all U.S. assets
has been greater than U. S. investment abroad, which has tended to push the net U.S.
international investment position further into a negative position. This is not the first
time in the nation’s history that the U.S. net international investment position has
been negative.
Early in the nation’s history as the United States made the transition from being
a developing economy to being a major economic superpower, foreign investment
flowed into capital development projects such as railroad and canal construction
which aided the westward expansion and the development of heavy industries. By
1920, foreigners had withdrawn many of their assets from the United States to
finance World War I, which turned the United States into a net creditor. This net
creditor position grew unabated after World War II and into the 1980s, when large
inflows of foreign investment once again turned the nation into a net international
investment debtor.
The U.S. net debtor status continued to grow through the 1990s and into the
2000s, as indicated by Figure 3. By year-end 2007, U.S. assets abroad are estimated
to have reached $17.1 trillion, while foreign owned assets in the United States
reached $19.8 trillion. As a result, the U.S. net international investment position was
estimated at a negative $2.8 trillion, or equivalent to about 19% of U.S. Gross
Domestic Product, marking a substantial increase in the relative size of the net
investment debt position over the previous decade, as indicated in Table 2. The net
investment position worsened by over $250 billion during 2007, with direct
investment measured at historical cost. According to the two other measures for
direct investment — current cost and market value — the net investment position
was valued at about negative $2.4 trillion and $1.7 trillion, respectively.


3 See CRS Report RL32461, Outsourcing and Insourcing Jobs in the U.S. Economy:
Evidence Based on Foreign Investment Data, by James K. Jackson.

Figure 3. Foreign Official and Private Investment Positions in the
United States, 1994-2007


Trillions of dollars
$16
$14
$12
$10
$8
$6
$4
$2
$0
1994 1996 1998 2000 2002 2004 2006
Foreign official assetsForeign private assets
Source: Department of Commerce
Table 2. U.S. International Investment Status
(billions of dollars)
Foreign- U.S. NetU.S. GrossRelative Share
U.S.-OwnedOwned AssetsInternationalDomesticof U.S. Gross
Assets Abroadin the UnitedInvestmentProductDomestic
St at es Position P r oduct

1980 929.8 569.0 360.8 5,161.7 7%


1985 1,287.4 1,233.1 54.3 6,053.7 1%


1990 2,179.0 2,424.3 -245.3 7,112.5 3%


1991 2,286.5 2,595.7 -309.3 7,100.5 4%


1992 2,331.7 2,762.9 -431.2 7,336.6 6%


1993 2,753.6 3,060.6 -307.0 7,532.7 4%


1994 2,987.1 3,310.5 -323.4 7,835.5 4%


1995 3,486.3 3,944.7 -458.5 8,031.7 6%


1996 4,032.3 4,527.4 -495.1 8,328.9 6%


1997 4,567.9 5,388.6 -820.7 8,703.5 9%


1998 5,090.9 5,990.9 -900.0 9,066.9 10%


1999 5,965.1 6,740.6 -775.5 9,470.3 8%


2000 6,023.4 7,455.8 -1,432.4 9,817.0 15%


2001 6,075.9 8,053.6 -1,977.7 9,890.7 20%


2002 6,401.8 8,585.0 -2,183.2 10,074.8 22%


2003 7,380.9 9,613.7 -2,132.8 10,960.8 20%


2004 8,893.3 11,364.1 -2,470.7 11,685.9 21%


2005 11,445.3 13,575.2 -2,130.0 12,433.9 17%


2006 13,900.0 16,299.4 -2,399.4 13,194.7 18%


2007 17,098.4 19,752.0 -2,653.6 13,841.3 19%


Source: Department of Commerce

The foreign investment position in the United States continues to increase as
foreigners acquire additional U.S. assets and as the value of existing assets
appreciates. These assets are broadly divided into official and private investments
reflecting transactions by governments among themselves and transactions among
the public. At times, some observers have been concerned about the amount of
foreign official investment in the U.S. economy, particularly in U.S. Treasury
securities and, more recently, purchases of U.S. businesses by foreign governments.
As Figure 4 indicates, official asset holdings were valued at about $3.3 trillion in
2007, or about 16% of the total foreign investment position, a share that has remained
relatively stable over the 15-year period of 1993 through 2007. Official assets
include such monetary reserve assets as gold, the reserve position with the
International Monetary Fund (IMF), and holdings of foreign currency. An important
component of foreign official holdings in the United States is the acquisitions of U.S.
Treasury securities by foreign governments. At times, such acquisitions are used by
foreign governments, either through coordinated actions or by themselves, to affect
the foreign exchange price of the dollar. Foreign currency holdings account for a
relatively small share of the total foreign investment position.
Figure 4. Foreign Official and Private Investment Positions in the
United States, 1994-2007


Trillions of dollars
$16
$14
$12
$10
$8
$6
$4
$2
$0
1994 1996 1998 2000 2002 2004 2006
Foreign official assetsForeign private assets
Source: Department of Commerce
Private asset holdings are comprised primarily of direct investment in businesses
and real estate, purchases of publicly traded government securities, and corporate
stocks and bonds. As indicated in Figure 5, the composition of U.S. assets abroad
and foreign-owned assets in the United States is different in a number of ways. The
strength and uniqueness of the U.S. Treasury securities markets make these assets
sought after by both official and private foreign investors, whereas U.S. investors
hold few foreign government securities. As a result, foreign official assets in the
United States far outweigh U.S. official assets abroad. Both foreign private and

official investors have been drawn at times to U.S. government securities as a safe
haven investment during troubled or unsettled economic conditions.
Figure 5. U.S. and Foreign Investment Position, By Major
Component, 2007


US AssetsForeign Assets
Total = $17.1 trillionTotal = $19.8 trillion
Official assets
Direct invest.
Govt. securities
Bonds
Stocks
Nonbanks
US banks
$0$1$2$3$4$5 $1 $2 $3 $4 $5
Trillio n s Trillio n s
Source: Department of Commerce
Of all the accounts, inward and outward direct investments are the most closely
matched, demonstrating the appeal of such investments to both U.S. and foreign
investors. In fact, the United States is unique in that it not only is the largest foreign
direct investor in the world, but it is also the largest recipient of direct investment in
the world. Foreign investors also have been attracted to U.S. corporate stocks and
bonds for the same reasons domestic U.S. investors have invested in them.4 The
decline in the overall value of U.S. corporate stocks after 2000, however, curbed the
rate of growth of foreign purchases of these assets. A similar decline in the value of
foreign stocks and the depreciation in the value of the U.S. dollar relative to a broad
range of currencies reduced the dollar value of American-owned stock holdings
abroad. Claims by private banks are also included in the international investment
accounts and represent a broad range of international financial transactions, including
financing for short-term trade credits associated with exports and imports of
merchandise goods.
4 For additional information, see CRS Report RL32462, Foreign Investment in U.S.
Securities, by James K. Jackson.

International Investment:
Sources and Economic Impact
International investment not only has an impact on the U.S. economy, but it is
affected by the economy. For U.S. investors, foreign markets provide them with
opportunities to seek out the greatest returns for their investments, returns which are
repatriated back to the United States. In addition, U.S. direct investment abroad, for
the most part, tends to stimulate U.S. exports, which in turn stimulates the most
productive sectors of the economy.5 U.S. direct investment abroad is highly sought
after by developing countries which want the capital not only to supplement their
own limited domestic sources, but they also want American technology and
expertise.
Foreign capital inflows augment domestic U.S. sources of capital, which, in
turn, keep U.S. interest rates lower than they would be without the foreign capital.
Indeed economists generally argue that it is this interplay between the demand for
and the supply of credit in the economy that drives the broad inflows and outflows
of capital. As U.S. demands for capital outstrip domestic sources of funds, domestic
interest rates rise relative to those abroad, which tends to draw capital away from
other countries to the United States.
The United States also has benefitted from a surplus of saving over investment
in many areas of the world that has provided a supply of funds. This surplus of
saving has been available to the United States because foreigners have remained
willing to loan that saving to the United States in the form of acquiring U.S. assets,
which have accommodated the growing current account deficits. Over the past
decade, the United States experienced a decline in its rate of savings and an increase
in the rate of domestic investment, as indicated in Table 3. The large increase in the
Nation’s current account deficit would not have been possible without the
accommodating inflows of foreign capital.
As Table 3 indicates, compared with the 1994-2001 period, U.S. saving in 2007
declined by 3.4% of gross domestic product (GDP), while investment increased by
0.8% of GDP. This shift toward greater investment relative to saving was
accommodated by an increase worldwide in saving relative to investment. Among
other advanced economies and the newly industrialized economies in Asia, both
saving and investment declined in 2007 relative to the 1994-2001 period, but
investment declined more as a share of GDP than did saving, so in relative terms
saving increased as a share of GDP. In the emerging developing economies, the
developing economies of Asia (which includes China), and the Middle East, saving
as a share of GDP increased faster, and in some cases much faster, than did
investment, which also increased in most of these areas. The large inflows of foreign
capital to the United States likely arise from the relatively more robust economic
growth that occurred in the United States compared with almost any other area, the
well-developed U.S. financial system, and the overall stability of the U.S. economy.


5 For additional information, see CRS Report RL32461, Outsourcing and Insourcing Jobs
in the U.S. Economy: Evidence Based on Foreign Investment Data, by James K. Jackson.

Table 3. Saving and Investment in Selected Countries and
Areas; 1994-2001 and 2007
(Percentage of Gross Domestic Product)
Area/Country Average,1994- 2001 2007 Change
World
Savi ng 22.1 23.7 1.6
Inve stme nt 22.4 23.3 0.9
United States
Savi ng 17.0 13.6 -3.4
Inve stme nt 19.6 18.8 -0.8
Other Advanced Economies
Savi ng 21.6 20.0 -1.6
Inve stme nt 21.8 21.1 -0.7
Eurozone
Savi ng 21.3 21.8 0.5
Inve stme nt 21.0 22.2 1.2
Japan
Savi ng 29.3 28.6 -0.7
Inve stme nt 26.9 23.8 -3.1
Newly Industrialized Asian Economies
Savi ng 33.0 32.0 -1.0
Inve stme nt 29.9 25.7 -4.2
Emerging Developing Economies
Savi ng 24.1 33.0 8.9
Inve stme nt 24.8 28.8 4.0
Developing Asia
Savi ng 32.7 44.7 12.0
Inve stme nt 32.4 37.9 5.5
Middle East
Savi ng 25.2 44.7 19.5
Inve stme nt 22.1 24.9 2.8
Source: World Economic Outlook, International Monetary Fund, April 2008. p. 268-271.
Capital inflows also allow the United States to finance its trade deficit because
foreigners are willing to lend to the United States in the form of exchanging the sale
of goods, represented by U.S. imports, for such U.S. assets as stocks, bonds, and U.S.
Treasury securities. Such inflows, however, put upward pressure on the dollar,
which tends to push up the price of U.S. exports relative to its imports and reduce the
overall level of exports. Furthermore, foreign investment in the U.S. economy drains
off some of the income earned on the foreign-owned assets that otherwise would
accrue to the U.S. economy as foreign investors repatriate their earnings back home.
Some observers are particularly concerned about the long-term impact of the
U.S. position as a net international investment debtor on the pattern of U.S.



international income receipts and payments. In 2007, the United States received
$900 billion in income receipts (including receipts on royalties) on its investments
abroad and paid out $761 billion in income payments (including payments on
royalties) on foreign-owned assets in the United States for a net surplus of $139
billion in income receipts.6 This surplus has varied over time as rising interest rates
increases payments to foreign investors on such assets as Treasury securities and
corporate bonds.7 As the annual amount of foreign investment in the U.S. economy
continues to exceed the amount of U.S. investment abroad, it seems inevitable that
U.S. payments on foreign-owned assets will exceed U.S. receipts. A net outflow of
income payments would act as a drag on the national economy as U.S. national
income is reduced by the net amount of funds that are channeled abroad to foreign
investors.
One of the positive areas of the income accounts is the income receipts the
United States receives on U.S. direct investments abroad. Although the historical
cost value of U.S. direct investment abroad and foreign direct investment in the U.S.
are roughly equal, the United States earned $234 billion more on its direct investment
assets abroad in 2007 than foreigners earned on their direct investments in this
country, as indicated in Figure 6. As indicated previously, in 2005 U.S. parent firms
reduced the amount of reinvested earnings going to their foreign affiliates for
distribution to the U.S. parent firms in order to take advantage of one-time tax
provisions in the American Jobs Creation Act of 2004 (P.L. 108-357). The
Department of Commerce has analyzed data on direct investment to determine the
source of the low rate of return of foreign direct investment relative to U.S. direct8
investment abroad. This analysis concluded that the gap in the rate of return
between U.S.-owned enterprises abroad and foreign-owned enterprises in the United
States is narrowing over time and seems to be related to the age of the investment,
or that as foreigners’ investments mature the rate of return of the assets approaches
that of U.S. direct investment abroad.
The U.S. net surplus of income receipts arising from direct investments was
offset to a large extent by large net income payments to foreign holders of U.S.
government securities, which grew by 22% to $165 billion in 2007, up from the $135
billion it received in 2006. The overall U.S. income surplus was increased further
by the income payments made to U.S. holders of foreign corporate stocks and bonds.
The United States received $444 billion in income from the corporate stocks and
bonds Americans owned abroad and paid out over $427 billion to foreign holders of
U.S. corporate securities, for a net inflow of $17.8 billion in income receipts on such
assets. In addition, the United States received $82 billion in royalties in 2007 on
various products and on U.S.-licensed production technology, patents, and


6 Sauers, Renee M., and Kristy L. Howell, U.S. International Transactions: First Quarter of

2008. Survey of Current Business, July 2008. P. 58.


7 Whitehouse, Mark, U.S. Foreign Debt Shows Its Teeth AS Rates Climb. The Wall Street
Journal, September 25, 2006. P. A1.
8 Mataloni, Raymond, Jr., “An Examination of the Low Rates of Return of Foreign-Owned
U.S. Companies,” Survey of Current Business, March 2000, p. 55-73; and Landefeld, J.
Steven, Ann M. Lawson, and Douglas B. Weinberg, “Rates of Return on Direct Investment,”
Survey of Current Business, August 1992, p. 79-86.

copyrighted material. This was more than double the $25 billion the United States
paid foreigners in royalties on their investments in the United States.
Figure 6. U.S. Income Receipts and Payments on U.S.-Owned
Assets Abroad and on Foreign-Owned Assets in the United
States, 2007


US ReceiptsUS Payments
Total = $900.4 millionTotal = $761.1 million
Direct investment
Other private assets
U.S. Government
Royalties
$0$100$200$300$400 $100 $200 $300 $400
$50$150$250$350$450 $50 $150 $250 $350 $450
Millions of dollarsMillions of dollars
Source: Department of Commerce
Some observers also are concerned about the extensive amount of foreign
investment overall in the U.S. economy and in U.S. financial assets. According to
the estimates provided in Table 4, foreigners own approximately 20% of total U.S.
wealth. Although foreign investors own a little less than 6% of total U.S. fixed
private capital stock, they own substantially larger shares of U.S. financial assets.
For instance, foreign investors now own nearly 50% of total U.S. Federal debt and
more than half of the outstanding publicly traded U.S. Treasury securities.9 Some
observers argue that such investments could spur an economic crisis in this country
should foreign investors decide to pull their money out of the investments, whether
for economic or political reasons. This possibility seems remote, however, given the
negative impact such an action might have on the foreign investors themselves, but10
the concerns remain.
9 For additional information, see CRS Report RL32462, Foreign Investment in U.S.
Securities, by James K. Jackson.
10 For a longer presentation of this topic, see CRS Report RL34319, Foreign Ownership of
U.S. Financial Assets: Implications of a Withdrawal, by James K. Jackson.

Table 4. Estimates of Wealth in the United States, 2006
Current-Cost, Gross Stock Values
(billions of dollars, percent)
Item Total F oreignOw ned F oreignShare
Fixed Private Capital$31,816.50$1,789.095.6%
Nonresidential $14,715.00 $1,789.09 12.2%
— Agriculture, Forestry, and Fisheries$542.80$2.530.5%
— Mining$1,158.80$55.484.8%
— Construction$238.70$10.304.3%
— Manufacturing$2,036.60$593.6129.1%
— Transportation$984.70$24.722.5%
— Wholesale Trade$469.10$252.0353.7%
— Retail Trade$936.50$32.903.5%
— Finance, Insurance, Real Estate$1,499.80$291.2719.4%
— Services$3,559.10$209.095.9%
Residential $17,444.90
— Farms$98.30
— Real Estate$17,005.20
Fixed Government Capital$8,738.50
— Equipment$856.60
— Structures$7,881.90
Consumer Durable Goods$3,875.10
Financial Assets$35,576.92$9,901.2027.8%
— Federal Debt, Publicly Held$4,924.72$2,115.0142.9%
— Corporate Stocks$20,905.90$2,538.7212.1%
— Corporate Bonds$9,746.30$2,689.8227.6%
— Other$2,557.65
To t a l $80,009.02 $16,294.62 20.4%
Source: Nguyen, Elena L., The International Investment Position of the United States at Yearend
2006, Survey of Current Business, July 2007. p. 18-19; Wasshausen, David B., Fixed Assets and
Consumer Durable Goods for 1997-2006, Survey of Current Business, September 2007. p. 21-32;
Foreign Direct Investment in the United States, Detail for Historical-Cost Position and Related Capital
and Income Flows, 2004-2006. Survey of Current Business, September 2007. Table 17; Flow of
Funds Accounts of the United States Flows and Outstandings, Second Quarter 2007, September 17,
2007. Tables L212 and L213; Treasury Bulletin, Department of the Treasury, September 2007. Table
FD-1 .
Congressional Response
Despite expressing concerns at times about the U.S. net international investment
position, Members of Congress generally have been reluctant to intervene in the
investment process, whether inward or outward. Indeed, successive Congresses and
Administrations have led international efforts to eliminate or reduce restraints on the
international flow of capital. If the U.S. net investment position continues to turn
more negative, prospects increase that the positive U.S. net income receipts will turn
negative as U.S. income payments overwhelm U.S. income receipts. In such a case,
the U.S. economy will experience a net economic drain as income that could be used
to finance new U.S. businesses and investments will be sent abroad to satisfy foreign
creditors. Such a drain likely will be small at first relative to the overall size of the



economy, but it could grow rapidly if the economy continues to import large amounts
of foreign capital.
Some observers are also concerned about the growing role foreign investment
is playing in the economy by bridging the gap between domestic sources and
demands for credit. One chief consideration is how the capital is being used.
Investment funds that are flowing into direct investment and into corporate stocks
and bonds presumably are being used to bolster investments in plant and equipment
and other investments that aid in corporate productivity over the long run. As such,
those investments may well provide a boost to U.S. economic growth well into the
future. Foreign investment in U.S. Treasury securities directly aid in financing the
Federal government’s budget deficits and indirectly ease the Federal government’s
demands on domestic credit markets, which assists U.S. firms and consumer
consumption by freeing up capital in the economy and by relieving some of the
pressure on domestic interest rates.
One growing concern among some policymakers is the rising amount of
investment by foreign governments in U.S. businesses, real estate, and portfolio
assets (corporate stocks and bonds, and U.S. Government securities). Such
investments by foreign governments are bolstered by the growing holdings of U.S.
currency by foreign governments, known as sovereign wealth funds, which are
estimated to amount to more than $2.5 trillion.11 U.S. policy toward foreign
investment generally has been one of acceptance and openness. Investments by
foreign governments, however, are viewed by some as a new and different kind of
investment that bears greater scrutiny. Such investments by foreign governments are
viewed by some as contrary to longstanding U.S. policies which have encouraged
foreign governments to shift away from owning businesses enterprises and to support
private ownership. For some observers, investments by foreign governments also
raise the potential for official interference into a broad range of market activities.
There is no evidence to date that ownership of various U.S. assets by foreign
governments, by itself, has affected the management of those assets or the markets
in which they exist in ways that differ from ownership by private foreign entities.
Nevertheless, such concerns likely helped motivate Congress to pass, and President
Bush to sign on July 26, 2007 P.L. 110-49, the Foreign Investment and National
Security Act of 2007, which increases congressional oversight over acquisitions of
U.S. businesses by foreign governments.
Some observers contend that a sharp decline in capital inflows or a sudden
withdrawal of foreign capital from the economy could spark a financial crisis.
Congress likely would find itself embroiled in any such financial crisis through its
direct role in conducting fiscal policy and in its indirect role in the conduct of
monetary policy through its supervisory responsibility over the Federal Reserve.
Such a coordinated withdrawal seems highly unlikely, particularly since the vast
majority of the investors are private entities that presumably would find it difficult
to coordinate a withdrawal. Short of a financial crisis, events that cause foreign
investors to curtail or limit their purchases of U.S. securities likely would complicate


11 Weisman, Steven R., A Fear of Foreign Investments. The New York Times, August 21,

2007.



efforts to finance budget deficits in the current environment without such foreign
actions having an impact on U.S. interest rates, domestic investment, and long-term
rate of growth.