America's Declining National Wealth
A rich country is typically defined as one with a positive net investment position, indicating that it owns more of other countries' assets than those countries own of it. For much of the 20th century, the United States held the highest positive net investment position worldwide. However, in recent times, foreign entities have come to own tens of trillions more in U.S. assets than the U.S. owns of theirs.
Newly released data from the U.S. Bureau of Economic Analysis (BEA) shows that the U.S.'s net international investment position has hit a record low of negative $22.5 trillion in the second quarter of 2024. This figure represents the difference between U.S. residents' foreign financial assets and liabilities.
The Breakdown of U.S. Debt
U.S. entities and individuals collectively owe other countries a staggering $58.5 trillion. This debt will generate interest, dividends, and capital appreciation over time, representing future income and wealth accumulation potential that will flow out of the U.S. and into foreign hands. The $36 trillion in foreign assets held by U.S. residents is insufficient to offset this deficit. This situation effectively means that future generations of Americans are being impoverished as we consume more today.
The rate of decline in American wealth is accelerating. On the eve of the global financial crisis in 2007, the U.S.'s net international investment position was negative $1.2 trillion. By the eve of the COVID-19 pandemic in 2019, this deficit had grown to negative $11.7 trillion. Over the past five years, an additional $10 billion has been added to this deficit, with $6 trillion lost in the last two years alone.
The Root Cause and Potential Solutions
The cause of this situation is clear: the U.S. is consuming more than it produces and borrowing to make up the difference. This trend is evident in government, corporate, and household sectors, all of which are over-leveraged and living beyond their means. The solution requires significant changes to economic policies and regulatory frameworks.
Firstly, the U.S. must address its over $1 trillion annual trade deficit. Many trading partners have not treated the U.S. fairly, engaging in currency manipulation, industrial espionage, IP theft, and other unfair practices. The U.S. must also rebuild its domestic manufacturing capability to produce goods and services that the market demands.
Secondly, the U.S. must leverage its domestic energy capabilities. The country has abundant natural resources and domestic energy productive capability that has been restricted by regulatory regimes. Allowing domestic oil, gas, coal, nuclear, and other resource companies to operate freely could generate substantial national wealth.
Lastly, the U.S. must balance its budget to break the cycle of deficit, debt, and inflation that has allowed the government to print and spend money it doesn't have. The current national debt stands at $35.4 trillion, excluding liabilities such as Social Security and Medicare, and continues to grow by trillions each year.
The Bottom Line
The current situation appears to be a slow-moving disaster that must be averted. It's crucial not to ignore the gravity of the situation. It's not too late to change course, but this will require a unified effort and sensible policy objectives to halt and reverse the rapid outflow of future prosperity.
What are your thoughts on this issue? Do you agree with the proposed solutions? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
America's Declining National Wealth
A rich country is typically defined as one with a positive net investment position, indicating that it owns more of other countries' assets than those countries own of it. For much of the 20th century, the United States held the highest positive net investment position worldwide. However, in recent times, foreign entities have come to own tens of trillions more in U.S. assets than the U.S. owns of theirs.
Newly released data from the U.S. Bureau of Economic Analysis (BEA) shows that the U.S.'s net international investment position has hit a record low of negative $22.5 trillion in the second quarter of 2024. This figure represents the difference between U.S. residents' foreign financial assets and liabilities.
The Breakdown of U.S. Debt
U.S. entities and individuals collectively owe other countries a staggering $58.5 trillion. This debt will generate interest, dividends, and capital appreciation over time, representing future income and wealth accumulation potential that will flow out of the U.S. and into foreign hands. The $36 trillion in foreign assets held by U.S. residents is insufficient to offset this deficit. This situation effectively means that future generations of Americans are being impoverished as we consume more today.
The rate of decline in American wealth is accelerating. On the eve of the global financial crisis in 2007, the U.S.'s net international investment position was negative $1.2 trillion. By the eve of the COVID-19 pandemic in 2019, this deficit had grown to negative $11.7 trillion. Over the past five years, an additional $10 billion has been added to this deficit, with $6 trillion lost in the last two years alone.
The Root Cause and Potential Solutions
The cause of this situation is clear: the U.S. is consuming more than it produces and borrowing to make up the difference. This trend is evident in government, corporate, and household sectors, all of which are over-leveraged and living beyond their means. The solution requires significant changes to economic policies and regulatory frameworks.
Firstly, the U.S. must address its over $1 trillion annual trade deficit. Many trading partners have not treated the U.S. fairly, engaging in currency manipulation, industrial espionage, IP theft, and other unfair practices. The U.S. must also rebuild its domestic manufacturing capability to produce goods and services that the market demands.
Secondly, the U.S. must leverage its domestic energy capabilities. The country has abundant natural resources and domestic energy productive capability that has been restricted by regulatory regimes. Allowing domestic oil, gas, coal, nuclear, and other resource companies to operate freely could generate substantial national wealth.
Lastly, the U.S. must balance its budget to break the cycle of deficit, debt, and inflation that has allowed the government to print and spend money it doesn't have. The current national debt stands at $35.4 trillion, excluding liabilities such as Social Security and Medicare, and continues to grow by trillions each year.
The Bottom Line
The current situation appears to be a slow-moving disaster that must be averted. It's crucial not to ignore the gravity of the situation. It's not too late to change course, but this will require a unified effort and sensible policy objectives to halt and reverse the rapid outflow of future prosperity.
What are your thoughts on this issue? Do you agree with the proposed solutions? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
