A +$400 Billion Week

Pierre-Olivier Gourinchas guesses that last week the U.S.'s net foreign asset position improved by $400 billion. Americans' assets overseas, you see, are primarily denominated in local currencies or are real assets. Foreigners' assets here, you see, are primarily denominated in dollars. The weakening of the dollar thus raised Americans' assets minus liabilities by about $400 billion.

Nice work if you can get it. Exorbitant privilege.

Comments

[andres]

Er, yes, but don't forget that most Americans who directly own assets abroad are usually in the top 10% of income earners or higher. Just as in corrupt, financially fragile developing countries whose currencies depreciate against the dollar and euro, the potential fall in the value of the dollar may well lead to a more regressive distribution of wealth.

Conversely, those countries holding substantial dollar assets will see their wealth distibution improve if the holders of those assets still take the risk of holding on to them and lose.

[brad setser]

$400b seems high. It is 4% * $10 trillion ... and while the euro/ $ and poiund/ $ moved by that much in November and a bit more if you include the move to 1.33, I don't think the US has$10 trillion in euro and pound denominated assets. sure then yen moved too, which helps -- tho it doesn't help as much in the annual data. If memory serves after you net out US holdings of carribean stocks and US lending to the world (mostly in dollars), the US held about $6 trillion in fx denominated assets, with say 2/3s of those in europe and canada ...

I don't quite get $400b then for the past few weeks. but I do get a number that is bigger than $400b for the year ... (1.17 to 1.33 = a nice move, plus european equities have done alright in euro terms ... )

If Dr. Gourinchas or Dr. Rey checks in here, I would certainly be interested in any more disaggregated estimates!

[Well, it was made by POG in an elevator, so we defer to you.]

[wkwillis]

In 1939 the US had the nineteenth largest army in the world, just after Portugal. But we built the largest army (in combat terms) within four years because we had the industrial potential.
Today, we have the tenth largest foreign reserves in the world, just ahead of Malaysia, but since their reserves are in dollars and ours are in gold, what is our real reserve status?
I don't count our overseas assets as financial assets because when we default on the dollar they will just confiscate our assets overseas as compensation, anyway.

[christofay]

And the gold in Ft Knox, what there is of it, if anything, was confiscated too.

What are our national overseas assets, mostly Fortune 500 type companies' overseas assets. Fluctuating foreign exchange valuations aren't an accurate way to track the value of a Ford plant in Belgium, a job where you have to wake up everyday to produce something worthwhile to buy. Looking at fluctuating wealth, it's just another example of Americans tracking paper wealth.

[christofay]

I mean, looking at fluctuating exchange rates and saying we're up $400 bil last week, we're just sounding like the guys in the barbershop with msnbc on during the internet bubble year.

[d'Nile]

Behold the power of the USD as the world's reserve currency. Dollar price fluctuations hit everyone else far harder than they hit Americans.

The status of the USD as the world's reserve currency is the only thing that's kept the US economy from imploding due to trade deficit. There's just nowhere else for other people to put their money.

[Ebon Kreig]

Wow, call me blissfully ignorant, but are you insuating that American plutocrats desire a fall in the value of the dollar for the benefit of lining their own pockets?
Would this be considered parallel with or congruent with the present administration's appointing of incompetent or "sympathetic" cronies to head various govt departments and that these people are solely in their positions to undermine public confidence in govt altogether therefore contributing to a larger privatization of the public sector?
Damn, these people are smart. Nothing spells success like failure.

[d'Nile]

Remind me. For how long has Cheney been shorting the dollar?

[john kitchen]

I get a +$400-plus billion valuation change effect for the US NET investment position for the full YEAR so far by adding the exchange valuation effect and the
price valuation effect. But the exchange valuation effect itself -- which seems to be the focus of the DeLong post -- is about $200 billion for the YEAR so far.

As to the "price" valuation effect, foreign stock markets are doing "better" than U.S. stock markets so far this year through the end of November; also the U.S. foreign portfolio is more heavily weighted to equities than foreign-owned asset portfolio in US. A weighted avg. of foreign stock market indexes is up 15.5% Dec 05 - Nov 06; Wilshire 5000 up 10.4%.

That gives an estimated valuation change to the US NET investment position of +$230 billion for the price effect, on top of the about $200 billion for the exchange valuation effect ...

But the overall NET position still would worsen because the negative financial flows (current accout mainly) are more than twice as large as the (partially offsetting) valuation effects ...