MACROECONOMICS

Macroeconomics

Macroeconomics

Answer of C1

The Net international investment position of the United States at yearend 2009 was -$521.3 billion when direct investment is valued at the current cost of replacing plant, equipment, and other tangible assets, and it was -$611.5 billion when direct investment is valued at the current stock-market value of owners' equity. (Blanchard, 2000)

The negative position valued at current cost increased $156.5 billion from $364.9 billion at yearend 2008, and the negative position valued at market value increased $215.1 billion from $396.4 billion. The increases in both measures stemmed from net capital inflows, a rise in U.S. stock prices, price decreases in several major foreign stock markets, and depreciation of several leading currencies against the dollar. Foreign capital inflows reflected strong net purchases of U.S. bonds, a large build-up of foreign official assets in the United States, and moderate foreign borrowing by U.S. banks; inflows for foreign direct investment in the United States declined to a 20-year low. Partially offsetting the foreign net capital inflows were record U.S. outflows to purchase foreign securities and near-record outflows for U.S. direct investment abroad.

At current cost, the 2009 change in position consisted of net capital inflows of $78.6 billion; negative price changes of $34.5 billion, mostly reflecting price appreciation in foreign-held U.S. stocks; exchange rate depreciation of $45.2 billion; and "other" changes of $1.9 billion. The exchange rate depreciation was primarily in U.S. (Blanchard, 2000) direct and portfolio investment in Europe and Canada, where currencies depreciated against the dollar from the end of 2008 to the end of 2009.

At market value, the change in the position consisted of net capital inflows of $78.6 billion; negative price changes of $107.6 billion, reflecting the combined impact of an increase in U.S. stock prices on foreign-held U.S. stocks and a drop in foreign stock prices on owners' equity in U.S. direct investment abroad; exchange rate depreciation of $31.3 billion; and "other" changes of $2.4 billion.

This article first discusses the major changes in U.S. assets abroad and the major changes in foreign assets in the United States on both a current-cost and market-value basis. It then presents detailed estimates on the U.S. direct investment position abroad and the foreign direct investment position in the United States; these detailed estimates by country, by industry, and by account are available only on a historical-cost basis. (Blanchard, 2000)

U.S. bank-reported claims on foreigners decreased $25.0 billion, to $666.9 billion, in 2009. Banks in the United States, especially foreign-owned banks, sharply reduced their dollar claims on the overseas interbank market and further reduced claims on other foreigners. Foreign currency claims declined because of large net repayments. The general reduction in cross-border positions of U.S. banks reflected the weakened economic demand for bank credit that resulted from the sharp slowdown in growth rates among industrial countries, further retrenchment of Japanese banks in the United States, and a trimming of inter-office positions by U.S.-owned banks. In addition, banks limited their international lending because of concerns over borrowers' ...