Valuation Effects and The U.S. Current Account Deficits
Valuation effects have been increasingly important for the U.S. in the last two decades, given a dramatic, sharp rise in international cross-country portfolio holdings. For the U.S., valuation effects are partly compensating its current account deficits and therefore mitigating the decline of its net foreign assets.
During 1994-2007, the U.S. accumulated more than US$5 trillions in current account deficits. This figure will be rising at least in 2009 and 2010. The phenomenon understandably raises a lot of concerns about the size of the U.S. external debts, because a high, unsustainable external debt can result in painful debt service and/or sharp currency depreciation.
New evidence, however, suggests that while the U.S. has been experiencing large, persistent current account deficits, the assets U.S. investors hold overseas are gaining more in value compared to the value of U.S. assets held by foreign investors. These positive valuation effects represent financial gains for the U.S. (some attribute this phenomenon to exorbitant privilege). Economists at the Federal Reserve estimated that during 1994-2007, the U.S. valuation effects (in stocks and bonds) are about +$1.2 trillion, about 22% of the U.S. total current account deficits,.
Read more about this topic: Valuation Effects
Famous quotes containing the words effects, current, account and/or deficits:
“The hippie is the scion of surplus value. The dropout can only claim sanctity in a society which offers something to be dropped out of—career, ambition, conspicuous consumption. The effects of hippie sanctimony can only be felt in the context of others who plunder his lifestyle for what they find good or profitable, a process known as rip-off by the hippie, who will not see how savagely he has pillaged intricate and demanding civilizations for his own parodic lifestyle.”
—Germaine Greer (b. 1939)
““I” is a militant social tendency, working to hold and enlarge its place in the general current of tendencies. So far as it can it waxes, as all life does. To think of it as apart from society is a palpable absurdity of which no one could be guilty who really saw it as a fact of life.”
—Charles Horton Cooley (1864–1929)
“For Hades is mighty in calling men to account below the earth, and with a mind that records in tablets he surveys all things.”
—Aeschylus (525–456 B.C.)
“Don’t forget what I discovered—that over ninety percent of all national deficits from 1921 to 1939 were caused by payments for past, present, and future wars.”
—Franklin D. Roosevelt (1882–1945)