House of Paine

the NIIP and FUCK zyztem

GLOBAL SOVEREIGN CREDIT HAWK
DAVID LEVEY 
ON 
THE ZYZTEM 


================================


 FIRST THE FUCK:



"Discussion of the United States'
 "net foreign debt" 
conjures up images of countries 
such as Argentina, Brazil, and Turkey, 
evoking the currency collapses 
and economic crises 
they have suffered 
as models for a coming U.S. meltdown"

---------TEE BALL SET UP ---------


" There is one  key difference
 between those emerging-market cases
 and the current condition 
of the global hegemon...."

----- ready to rumble ? -------------

" The United States'
   external liabilities
 are denominated in its own currency"

 " a currency 
 which remains the global monetary standard"


QED 
----------------------------------------------------

next the NIIP 

"The statistic at the center
 of the foreign debt debate 
is the net international investment position (NIIP)"


" the value 
of foreign assets 
owned by U.S. residents
 minus 
the value 
of U.S. assets 
owned by nonresidents"

" Until 1989
 the United States was a creditor 
to the rest of the world;
 the NIIP peaked at almost
 13 percent of GDP in 1980"

" But chronic current account deficits
 ever since have given the United States
 the largest net liabilities 
in world history"

 " foreign claims on the United States 
($10.5 trillion)
 exceed U.S. claims abroad 
($7.9 trillion)"

 "the NIIP is now negative:
 -$2.6 trillion at the start of 2004
 or -24 percent of GDP"

---------- 25 YEAR YANKEE  NIIP MOVE:

                  FROM PLUS 13 TO MINUS 24 ----------------



"Unpacking the NIIP 
gives a better sense
 of the risk it actually poses
 It has two components:

 direct investment

 (the value of domestic operations
 directly controlled by a foreign company)


 and 

financial liabilities

 (the value of stocks, bonds, and bank deposits 
held overseas)  "



" At the start of 2004
 foreign direct investment 
in the United States was 
$2.4 trillion
 while U.S. direct investment abroad 
was about
 $2.7 trillion

 (Direct investment is relatively stable
 changing mostly in response 
to changes in expected long-term profitability.)

" Removing direct investment 
from the equation 
leaves
$5.1 trillion 
in U.S.-held foreign financial assets 
versus
 $8.1 trillion 
in U.S. financial assets 
held by foreign investors"

"This last figure
 represents a whopping 74 percent of U.S. GDP
a statistic that would seem 
to give ample cause for alarm"


" But considering foreign ownership 
of U.S. financial assets
 as a percentage of GDP 
is less enlightening 
than comparing it 
to the total available stock 
of U.S. financial assets"

" At the start of 2004
 total U.S. securities 
amounted to $33.4 trillion 
(some 50 percent of the world total)"

" Foreign investors held more than 
38 percent
 of the $4 trillion
 in U.S. Treasury bonds

 but only 
11 percent 
of the $6.1 trillion 
in agency bonds
 (such as those issued by Fannie Mae and Freddie Mac)

 23 percent 
of the $6.5 trillion
 in corporate bonds; 

and 11 percent 
of the $15.5 trillion 
in equities outstanding  "

 "These foreign liabilities 
are the result of a string 
of current account deficits 
that have grown 
from 1.5 percent of GDP 
in the mid-1990s 
to an estimated 5.7 percent of GDP
about $650 billion in 2004"

" Economists 
at the Organization for Economic Cooperation and Development estimate 
that ongoing deficits 
of 3 percent of GDP
 would bring the U.S. NIIP to
40 percent of GDP by 2010
 and that it would eventually
 stabilize at around 63 percent"

 "If the deficit remains 
at today's level
 they foresee the NIIP growing to 
50 percent of GDP by 2010
 and eventually to 100 percent"

-----------------------------
back to FUCK 

"consider t future dollar depreciation
 and market adjustments 
in interest rates and asset prices

this  will likely check 
the increase of the NIIP."


' Dollar depreciation against
 the euro and the yen in 2002 and 2003
 kept the NIIP flat
 despite large current account deficits"


" The same result is likely for 2004
 Thus, 
although Uncle's  negative  NIIP
 will surely 
continue to grow for many years to come
 its increase will be far less dramatic
 than many economists fear"


---------- simple sequence

 if the  dollar falls


  one       
 our foreign portfolio 
to rise in value
while  the rest of the worlds
US  portfolio  falls 
improving  Uncle's  NIIP 

two

real us assets look cheap
possibly trigging a foreign buy in binge
 
 Uncle's NIIP 
   again
             IMPROVES  ----------------


=========================================