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Why did the United States Evolve from the Largest International Creditor in 1980 to the Largest International Debtor in 1990?

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  • Robert Aliber

    (University of Chicago)

Abstract

Remarkable transformation of the U.S. international investment position occurred over the last 40 years. U.S. net foreign assets were larger than combined net foreign assets of all other creditors. By 1990, foreign-owned U.S. securities and real assets were larger than U.S. owned foreign securities and assets. This change occurred without the U.S. Treasury borrowing in foreign currency and few U.S. firms borrowing, reflecting a surge in foreign purchases of U.S. securities. Inferences from the currency composition of portfolio changes of those who acquired U.S. dollar securities suggest that foreign savers took the initiative on cross-border investment inflows. The U.S. could not have developed a larger capital account surplus after 1980 unless a similar increase in the U.S. current account deficit occurred. The primary factor that led to the U.S. current account deficit increase was the surge in U.S. stocks and other asset prices, resulting in a U.S. household wealth surge and consumption boom. The foreign saving inflow displaced domestic saving. In addition, an increase in the price of the U.S. dollar led to expenditure-switching from U.S. goods to increasingly less expensive foreign goods. When investor demand for U.S. dollar securities declined, the U.S. dollar price fell in 1992, 2002, and 2020 and the price of U.S. dollar securities declined. The paper discusses the source of the change in the U.S. international investment position, the flow of foreign saving to the U.S., cyclical variability in the foreign saving flow to the U.S., and the potential impact of an adjustable parity arrangement.

Suggested Citation

  • Robert Aliber, 2020. "Why did the United States Evolve from the Largest International Creditor in 1980 to the Largest International Debtor in 1990?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(4), pages 405-411, December.
  • Handle: RePEc:kap:atlecj:v:48:y:2020:i:4:d:10.1007_s11293-020-09695-x
    DOI: 10.1007/s11293-020-09695-x
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    References listed on IDEAS

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    1. Joseph E. Gagnon & C. Fred Bergsten, 2012. "Currency Manipulation, the US Economy, and the Global Economic Order," Policy Briefs PB12-25, Peterson Institute for International Economics.
    2. H. Peter Gray, 2004. "The Exhaustion of the Dollar," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-50020-4, October.
    3. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank.
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    Cited by:

    1. Robert Z. Aliber, 2021. "Auric Goldfinger, Henry Morgenthau, and Camp David: August 1971," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 49(2), pages 117-126, June.
    2. Gylfi Zoega, 2021. "Financial Crises and Current Account Surpluses," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 49(2), pages 159-172, June.

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