Minggu, 19 Februari 2017

NET DEBT, BIG RETURN ( Degree of Comparison)

Diposting oleh Siva Mardiyahsari di 04.14




AS DONALD TRUMP sees it, America’s trade deficit is a sign of economic weakness, proof that lousy trade deals have sent production overseas. But Uncle Sam does not just import goods from the rest of the world and send nothing in return (though that would be a lucrative arrangement). Rather, the net inflow of goods is matched by a net outflow of stocks, bonds and other financial assets.

That makes America a debtor. In theory the interest and dividends paid to foreigners should chip away at national wealth in future. Since 1989 foreigners have owned more assets in America than Americans have owned overseas; in the jargon, the net international investment position (NIIP) has been negative. But America is an unusual borrower. For almost all of that time, it has received more income on its overseas investments than it has paid out to foreigners. This is strange: it is akin to someone’s savings earning more than enough interest to service his far bigger debts.

This contrast is getting starker (see chart). In recent years the NIIP has tumbled to -44% of GDP, the lowest since 1976, when the data begin. Yet net primary income—the returns—has held steady at about 1% of GDP. In dollar terms, America’s NIIP deficit is almost seven times as big as any other country’s. As a percentage of GDP, 11 rich countries have worse NIIPs; only one—Greece—earns net positive returns (probably thanks to its bail-outs).

The disparity between America’s balance-sheet and its earnings is sometimes attributed to the “exorbitant privilege” of printing the dollar, the world’s reserve currency. Everyone wants dollars, it is said, so America can raise funds more cheaply than others. Two other factors help. First, foreigners like to buy low-yielding American debt, but Americans investing overseas are keener on higher-yielding equities. Second, America seems to earn more on some of its investments of a given type.

A paper last year by Stephanie Curcuru and Charles Thomas of the Federal Reserve argues that the second effect is by far the most important. Between 1990 and 2010 the average yield America received on its foreign direct investments (FDI) was about 6.2 percentage points higher that what it paid out on comparable liabilities. The authors attribute this mainly to the greater risk of investing overseas and to America’s high corporate taxes, rather than to any mysterious benefit attached to issuing the world’s reserve currency.

But that does not help to explain the recent widening of the gap between the NIIP and net returns. The current-account deficit, which includes the trade deficit, is only partly to blame for the worsening balance-sheet. At 2.6% of GDP in 2015, it was less than half what it was in 2006. The NIIP is being pushed higher because of the strong dollar (which reduces the dollar value of American overseas investments) and the rapid rise in American share prices, says the IMF; it forecasts that the NIIP will reach -63% of GDP by 2021. So, because the economy has performed strongly, foreign investors in America have booked bigger paper gains than Americans invested overseas, despite generating less income. Sometimes privilege isn’t all its cracked up to be.

Sumber : http://www.economist.com/news/finance-and-economics/21709549-exorbitant-privilege-looks-greater-ever-net-debt-big-returns

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