Here is a diagram I constructed in preparation for teaching the open economy portion of macro policy:
figure 1: The ratio of the US net international investment position to GDP (blue, left axis) and the ratio of primary income balances to GDP (tan, right axis), both expressed as percentages. NBER-defined recession peak-to-trough dates are in gray. Source: BEA, FRED, NBER, and author's calculations.
The United States has been a net debtor to the rest of the world (assets – liabilities < 0) for many years, but income from the rest of the world has exceeded payments to the rest of the world since 2007.
Either we have grossly mismeasured our net worth (Hausmann-Stuzinger's “dark matter”), or our foreign assets have consistently had a much higher rate of return than our foreign assets at home (“exorbitant privilege”) , or both.See the very clear and concise discussion in these slides Schmidt, Uribe and Woodford (Slideshow 47 forward).This is a 2021 Econbrowser Posts.
Interestingly, the increasingly negative NIIP appears to have finally caught up with primary income, as the latter has now dropped to zero.
