“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“A full-throated defense of economic dynamism.” - The Wall Street Journal
AI Summary.Demand and supply curves estimated from pre-pandemic data imply relatively flat demand curves in the US and euro area, so adverse supply shifts would produce large output losses but comparatively little inflation. The authors argue explaining the observed combination of high inflation and output requires outward demand shifts, including accommodative monetary policy alongside fiscal expansion.
Domenico Giannone and Giorgio PrimiceriBookings Papers on Economic Activity
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Giannone and Primiceri revisit the relative role of supply vs. demand shocks in generating the post-Covid inflation. Because aggregate demand curves estimated from pre-pandemic data are flat, supply shocks alone would not have generated large inflation in the absence of added demand stimulus.
Did outward demand shifts, not supply shocks alone, drive recent inflation?
Core argument: Demand curves estimated from pre-pandemic US and euro-area data are relatively flat, reflecting central banks’ strong pre-pandemic responses to inflation, so adverse supply shifts produce large output losses but comparatively little inflation.
Demand and supply curve slopes are estimated from pre-pandemic data using the essentially definitional restriction that supply shocks move prices and output in opposite directions along demand curves, while demand shocks move them together along supply curves; the plotted slopes represent Bayesian posterior medians rather than uniquely identified estimates. The estimated demand curves are relatively flat in both the US and euro area [Figure 7], reflecting the central banks’ strong pre-pandemic responses to inflation. With those slopes, adverse supply shifts cause large output losses but comparatively little inflation. [To successfully explain] the combination of inflation and output observed in 2022 therefore requires demand to shift outwards too. Strong demand, including unusually accommodative monetary policy [on top of strong fiscal expansion], cushioned the output losses while increasing inflation [Figure 7]. In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area. That combination is suggestive of unexpectedly strong demand, whereas an adverse supply surprise alone would raise inflation but lower output. [Figure 9].
Takeaways by Macro Roundup® AI
Demand curves estimated from pre-pandemic US and euro-area data are relatively flat, reflecting central banks’ strong pre-pandemic responses to inflation, so adverse supply shifts produce large output losses but comparatively little inflation.
Explaining the 2022 combination of inflation and output requires an outward shift in demand, with strong demand — including unusually accommodative monetary policy atop fiscal expansion — cushioning output losses while raising inflation.
In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area, a combination suggestive of unexpectedly strong demand, since an adverse supply surprise alone would raise inflation but lower output.
Related Articles:
Are Government Bonds Safe in Times of War and Pandemic?— Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.
Why Did Inflation Rise And Fall In 2021-24? Channels And Evidence From Expectations— Across countries, unexpectedly higher government deficits relative to earlier International Monetary Fund forecasts are associated with unexpectedly higher inflation, measured by each factor's contribution to the increase in public debt, a relationship the author finds statistically significant. This evidence is consistent with a fiscal channel for inflation.
Fiscal Influences on Inflation in OECD Countries, 2020-2022— Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
AI Summary.The Institute of International Finance reports global debt as a share of output rose less than 10 percentage points between 2018 and mid-2026, peaking at 337% in early 2021 before falling 27 percentage points by the end of 2023. Inflation eroded the debt burden, as it did in the UK after the Second World War.
Martin WolfFinancial Times
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Wolf notes that the global debt-to-GDP ratio rose by less than 10pp btw 2018 and June 2026: after peaking at 337% in early 2021, it fell by 27pp by the end of 2023, as inflation boosted nominal GDP and eroded the value of existing debt.
Does inflation reduce the global debt burden?
Core argument: IIF data show the global debt-to-output ratio reached a post-Covid peak of 337% in early 2021 before falling by 27 percentage points by the end of 2023, with inflation identified as the force that eroded it.
The IIF shows that between 2018 and June 2026, the rise in the ratio of global debt to output was less than 10 percentage points. The story is striking: the ratio reached a post-Covid peak of 337% in early 2021, before falling by 27 percentage points by the end of 2023. What was this magical “debt-buster”? Good old-fashioned (and supposedly “unexpected”) inflation. This is — to put it mildly — not the first time inflation has wiped out debt. It was, to take one of countless examples, an important part of the UK’s elimination of its post-second-world-war debt. For countries able to print the money in which their debt is denominated, that is often what happens.
Takeaways by Macro Roundup® AI
IIF data show the global debt-to-output ratio reached a post-Covid peak of 337% in early 2021 before falling by 27 percentage points by the end of 2023, with inflation identified as the force that eroded it.
Between 2018 and June 2026, the IIF shows the ratio of global debt to output rose by less than 10 percentage points.
Inflation has wiped out debt before, forming an important part of the UK’s elimination of its post-second-world-war debt, and often does so for countries able to print the currency in which their debt is denominated.
Related Articles:
Are Government Bonds Safe in Times of War and Pandemic?— Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.
The Coming Great Repression?— Across countries and over time, higher public debt burdens are associated with lower relative returns on government bonds, the opposite of standard risk-premium predictions. The authors estimate financial repression—making banks captive bond buyers and loading them with low-return reserves—contributed 90.7 percentage points of GDP to Britain's postwar debt reduction, versus 20.3 from surprise inflation.
Global Debt Report 2026— Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
AI Summary.An analysis of 22 rich countries estimates that if each refinanced its entire debt at current five-year bond yields, Britain would need the largest primary surplus to stabilize its debt-to-GDP ratio, about 1.5%, followed by Italy at 1.4%, France at 1.2% and America at 1%.
Economist StaffThe Economist
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Refinancing the entire US debt stock at the current five-year borrowing rate, on current growth forecasts, would require a primary surplus of 1% of GDP to hold the debt ratio stable, a fiscal consolidation of 4.7pp. In October 2025, it would have required 2.3pp.
How much belt tightening would rich countries need to stabilize debt?
Core argument: The Economist calculates that Britain would need the largest primary surplus of 22 rich countries, about 1.5% of GDP, to hold its debt-to-GDP ratio stable if it replaced its entire debt stock at today’s five-year yields.
The Economist calculated what would happen if rich countries had to replace their entire debt stocks at today’s five-year bond yields, using IMF forecasts for nominal growth. Out of 22 countries, Britain would need to run the largest primary surplus, of about 1.5% of GDP, merely to keep its debt-to-GDP ratio stable. Italy and France are next, needing surpluses of 1.4% and 1.2%, respectively. America is not far behind, requiring one of 1%. Japan can run a deficit of 0.8% since its growth is estimated to outpace the interest rate on its debt. America is running a primary deficit of nearly 4% of GDP, meaning significant belt tightening of nearly five percentage points of GDP is needed to stabilise its debt ratio at today’s borrowing costs. The situation is deteriorating fast as a result of persistent deficits and surging yields. Just a year ago America required an adjustment of more than two percentage points less than it does today.
Takeaways by Macro Roundup® AI
The Economist calculates that Britain would need the largest primary surplus of 22 rich countries, about 1.5% of GDP, to hold its debt-to-GDP ratio stable if it replaced its entire debt stock at today’s five-year yields.
America requires a primary surplus of 1% of GDP to stabilise its debt ratio at today’s borrowing costs while running a primary deficit of nearly 4%, implying belt tightening of nearly five percentage points of GDP, by The Economist’s calculation.
Japan can run a primary deficit of 0.8% of GDP and still keep its debt burden stable because its growth is estimated to outpace the interest rate on its debt, while Italy and France need surpluses of 1.4% and 1.2%.
Related Articles:
America’s Risky Debt: What Markets See That Policymakers Don’t— Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.
The United States Capital Structure— Because Social Security and Medicare benefits are politically untouchable, retirees effectively hold the most senior claim on US government resources while Treasury bondholders hold the riskiest one. On this argument, bondholders absorb adverse fiscal shocks through surprise inflation, financial repression, or both.
How Might Fiscal Policy Respond to the Rise of Artificial Intelligence?— The Congressional Budget Office estimates that a permanent 0.5 percentage point increase in annual productivity growth would lower publicly held federal debt after 30 years by 39% of GDP, offsetting roughly half the projected rise from 101% of GDP to 175%. Higher revenue and slower spending growth outweigh higher interest costs.
AI Summary.Much of the official-sector inflow into the U.S. now comes from investors who are not traditional reserve managers, and those flows remain heavily tilted toward the dollar and toward risk assets rather than Treasuries. The author argues this shift in the global investor base helps explain why Treasuries trade at a discount while the dollar retains a premium.
Brad Setser and Alex EtraCouncil on Foreign Relations
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The stock of global dollar reserves has been roughly stable over the past decade. The world is not moving away from the dollar: dollar assets are shifting from official holdings of Treasurys towards private and quasi-sovereign holdings of risk assets.
Why do Treasuries trade at a discount while the dollar keeps premium?
Core argument: Most official-sector inflows into the U.S. come from investors who are not classic reserve managers, and those flows remain heavily tilted toward the dollar, so any real de-dollarization would likely begin among these investors.
Most of the current flow into the US from the “official” sector is coming from investors who are not classic reserve managers. Those flows remain heavily tilted toward the dollar, at least for now. Any real de-dollarization would likely occur first among these investors. Put differently, the dollar’s global role is increasingly as a source of returns, not a source of safety. The foreign bid, private and public, is for risk, not for Treasuries. It is currently fashionable in some circles to point to the diminution of the “convenience yield” on Treasuries even while the U.S. dollar continues to enjoy such a privilege. But the shift in the global investor base and their apparent portfolio preference for U.S. risk assets in lieu of Treasuries may help explain the divergence between the convenience yield on Treasuries and the convenience yield on the USD.
Takeaways by Macro Roundup® AI
Most official-sector inflows into the U.S. come from investors who are not classic reserve managers, and those flows remain heavily tilted toward the dollar, so any real de-dollarization would likely begin among these investors.
The dollar’s global role is increasingly as a source of returns rather than safety, with the foreign bid, private and public, directed at risk assets rather than Treasuries.
The shift in the global investor base toward U.S. risk assets in lieu of Treasuries may help explain the divergence between the convenience yield on Treasuries and that on the dollar, and suggests the “profit dollar” is likely trading at a historical premium.
Related Articles:
Financial Innovation and the International Monetary System— The dollar accounts for 59% of cross-border payments messaged through SWIFT, far ahead of the euro's 14%, and its share of foreign exchange turnover has risen gradually to about 90% of the 200% total since 2010. Official holdings of U.S. Treasuries have leveled off near $4tn while foreign private holdings rose from $1tn to over $5tn.
Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow— International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.
World’s Unusually High Dollar Exposure Risks Fueling Selloff— Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
AI Summary.An estimate of the intrinsic 10-year US Treasury rate, built from actual inflation and real economic growth, far exceeded the actual 10-year Treasury rate after inflation surged, and that gap has since narrowed to roughly 4.75% actual versus 5.41% intrinsic.
Aswath DamodaranMusing on Markets
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Damodaran’s “intrinsic” 10-year Treasury rate—calculated as US real GDP growth plus inflation—has broadly tracked the nominal 10-year Treasury yield since 1962. As of early September 2026, the 10-year yield of ~5% was 41bp below his 5.41% intrinsic-rate estimate.
Do long-term Treasury rates line up with inflation and growth fundamentals?
Core argument: As of September 2026, the US 10-year Treasury rate stood at 4.75% while the intrinsic 10-year rate was 5.41%, a gap of 66 basis points.
[The graph shows] the actual inflation rates and real GDP growth rates for the US, going back to 1962, and [the implied] intrinsic 10-year treasury rate (the cumulative column) and actual 10-year treasury rate each year. When inflation surged in 2022, interest rates went up, but since the rates that I am tracking are long term rates, the intrinsic risk free rate vastly exceeded the actual rate that year, but the difference has narrowed over time, and almost dissipated by September 2026 (when the US 10-year treasury bond rate was [5%] and and the intrinsic ten-year rates yielded 5.41%).
Takeaways by Macro Roundup® AI
As of September 2026, the US 10-year Treasury rate stood at 4.75% while the intrinsic 10-year rate was 5.41%, a gap of 66 basis points.
When inflation surged in 2022, the intrinsic risk-free rate vastly exceeded the actual 10-year Treasury rate, and that difference has narrowed since.
The intrinsic 10-year Treasury rate is built from actual US inflation and real GDP growth rates going back to 1962 and compared against the actual 10-year Treasury rate each year.
Related Articles:
The Budget and Economic Outlook: 2026 to 2036— The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.
US 30-Year Bonds Erase Gains From Treasury’s Buyback Surprise— US Treasuries erased nearly all gains that followed the Treasury Department's surprise decision to increase buybacks of longer-dated bonds, with the 30-year yield rising above 5.27% and the 10-year touching 4.71%. The reversal signals the move has done little to ease concern about surging government debt.
Annual Economic Report— Public debt in advanced economies has risen steadily, limiting governments' ability to cushion higher energy prices. Cyclically adjusted primary deficits averaged 1.9% of GDP in advanced economies since 2022 versus 1.1% over the two preceding decades, and 1.8% in emerging markets versus 0.1% from 2000–2019.
AI Summary.A decomposition of the 2.54 percentage-point rise in the 10-year US Treasury yield attributes 1.56 points, nearly two-thirds, to a higher term premium rather than expected future short-term rates. The author argues the premium had earlier turned negative as the Federal Reserve absorbed long-dated Treasury and mortgage-backed issuance, removing interest-rate risk.
Hanno LustigThe Two Cents
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Lustig presents a decomposition that attributes 156bp of the 254bp rise in the 10-year yield since March 2022 to an increase in the term premium, which he associates with the additional duration risk borne by investors as the Fed reduced its balance sheet.
Is the term premium driving most of the yield increase?
Core argument: Of the 2.54 percentage point increase in the 10-year Treasury yield since March 2022, 1.56 points — nearly two-thirds — comes from a higher term premium, according to the author's decomposition.
I plot a decomposition of the increase in the 10-year yield into a term premium component and a future short rate component. According to this measure, a big chunk —1.56 pps (or nearly 2/3 rds)— of the 2.54 pps increase in the 10-year yield since March 2022 is actually due to an increase in the term premium. That premium (the red line in the figure) turned negative around 2015, and [when] it bottomed out in 2020, yields (black line) were trading 135 bps below the path of future short rates (blue line). That’s not entirely surprising: The Fed was absorbing a large share of Treasury issuance at the long end of the yield curve —as well as MBS issuance— effectively removing a great deal of interest rate risk from the market.
Takeaways by Macro Roundup® AI
Of the 2.54 percentage point increase in the 10-year Treasury yield since March 2022, 1.56 points — nearly two-thirds — comes from a higher term premium, according to the author's decomposition.
The term premium turned negative around 2015 and bottomed in 2020, when 10-year yields traded 135 basis points below the path of future short rates.
The author attributes the 2020 trough in the term premium to the Fed absorbing a large share of long-end Treasury and MBS issuance, effectively removing interest rate risk from the market.
Related Articles:
What Are Bond Markets Telling Us?— There is little evidence that fears of a Greek-style solvency crisis are driving U.S. interest rates, since long-term "breakeven" inflation expectations have changed little. Prices for credit default swaps, which insure against a U.S. government default, have also moved little.
What Are US Treasury Markets Really Telling Us? Part I— Comparing US Treasury yields to AAA corporate bonds combined with credit default swap insurance creates a synthetic Treasury, and the resulting spread — the convenience yield investors give up for safety and liquidity — has disappeared, suggesting investors are indifferent between the two on safety and liquidity. The author argues this is bad news for US taxpayers.
America’s Risky Debt: What Markets See That Policymakers Don’t— Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.
AI Summary.US saving-investment data show that non-financial corporations remain net savers, unlike the early-2000s information technology boom when they flipped to net borrowers and their capital spending accounted for the entire current account deficit. Government dissaving through the budget deficit, not the artificial intelligence buildout, is absorbing national resources.
Robin BrooksRobin Brooks Substack
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Brooks argues, “The AI buildout isn’t why government bond yields are rising,” noting the US non-financial corporate sector was a net saver as of Q1 2026, which suggests government deficit spending is driving up long yields.
Is the AI buildout or the budget deficit absorbing national saving?
Core argument: US non-financial corporates remained net savers in the saving-investment balance data through the first quarter of this year, unlike the AI capex buildout narrative would suggest.
The chart shows quarterly data for the US saving-investment balance going back to 1990. This is an identity that apportions the current account balance into net saving in various sectors of the economy. Households tend to be net savers, as is the financial sector and non-financial corporates. The government tends to be a net borrower. The last time we had a lot of excitement about technological innovation and higher productivity growth was in the “IT bubble” of the early 2000s, which saw non-financial corporates flip from being net savers to borrowers, i.e. the capex buildout at the time was very large and - for a few years - accounted for the entire current account deficit. Nothing like that’s happening now. It’s government dissaving, i.e. the budget deficit, that’s eating up resources, while the non-financial corporate sector stayed a net saver in data through the first quarter of this year.
Takeaways by Macro Roundup® AI
US non-financial corporates remained net savers in the saving-investment balance data through the first quarter of this year, unlike the AI capex buildout narrative would suggest.
Government dissaving, that is the budget deficit, is the sector absorbing resources in the US saving-investment balance, which apportions the current account balance into net saving by sector.
During the early-2000s "IT bubble," US non-financial corporates flipped from net savers to net borrowers, and for a few years that capex buildout accounted for the entire US current account deficit.
Related Articles:
AI Is Driving Up Treasury Yields: ‘It Just Touches Everything’— Investment-grade companies have sold nearly $1.5tn of bonds, up 36% from a year earlier, and some investors have sold US Treasuries to buy higher-yielding corporate debt. Bank of America economists estimate the surge in corporate-debt sales, along with more mortgage-backed securities issuance, pushed 10-year rates up by about 0.3 percentage point.
The Other US Capex Question— Business investment outside artificial intelligence has been weak, contributing just 1.54% to total capital expenditure growth. The author argues AI investment is not crowding out other projects, since the spread between return on capital and cost of capital has stayed positive and US nonfinancial corporations' capital spending is below their gross savings.
Corporate America Is Minting Money—and Not Just in Tech and Finance— Earnings per share for S&P 500 companies are estimated to grow more than 13% year over year for a sixth straight quarter, with sales growth and improving margins accompanying the gains. Share buybacks are contributing less to earnings growth than in many quarters, with the gap between earnings-per-share and net income growth just under 1 percentage point.
AI Summary.Foreign ownership of US Treasury securities has shifted from official investors, who held the predominant share in 2008, toward private investors, whose holdings of $6.7tn now exceed official holdings of $3.9tn. Net issuance of Treasury securities boomed during and after the COVID pandemic, even accounting for Federal Reserve purchases that reduce net market supply.
Anusha Chari and Gian Maria Milesi-FerrettiBrookings Institution
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The composition of foreign ownership of U.S. Treasury debt has shifted sharply from official to private investors over the past two decades. Foreign private investors now hold $6.7T in Treasuries, vastly exceeding the $3.9T held by foreign official institutions.
Have private foreign investors overtaken official ones in holding Treasuries?
Core argument: Foreign private holdings of U.S. Treasury securities reached $6.7 trillion in mid-2025, including the Cayman Islands correction, exceeding official foreign holdings of $3.9 trillion.
Figure 5 shows a large shift in foreign holdings of US Treasurys: a diminishing role for official investors, who accounted for the predominant share in 2008, offset by a rising role for private investors. Figure 6 shows net issuance and purchases of U.S. Treasury securities during the past 25 years. The boom in net issuance during and after the COVID pandemic is particularly striking, even after controlling for the net purchases by the Fed which reduce net market supply. Foreign net purchases show a notable shift toward private purchases relative to the 2000s. As a result, foreign private holdings of U.S. Treasury securities in mid-2025 ($6.7 trillion, including the Cayman Islands correction) vastly exceed official holdings of $3.9 trillion.
Takeaways by Macro Roundup® AI
Foreign private holdings of U.S. Treasury securities reached $6.7 trillion in mid-2025, including the Cayman Islands correction, exceeding official foreign holdings of $3.9 trillion.
Foreign official investors accounted for the predominant share of foreign Treasury holdings in 2008, and their diminishing role has been offset by a rising role for private investors.
Net issuance of U.S. Treasury securities boomed during and after the COVID pandemic, even after controlling for Federal Reserve net purchases that reduce net market supply, alongside a shift in foreign net purchases toward private buyers relative to the 2000s.
Related Articles:
Mid-Year Outlook: At the Crossroads of Stagflation—What’s Next?— Foreign investors hold roughly $18.5tn in US equities (about 20% of the market), $7tn in Treasuries and $5tn in credit (about 30% of each), and foreign participation in 30-year Treasury auctions has trended down in recent months. Combined with US fiscal challenges, the authors argue this reliance on foreign demand is a vulnerability.
Tariffs and “International Payments Problems”— Foreigners are accumulating more financial claims on Americans than Americans are on foreigners across direct investment, stocks, bonds, currency, deposits, and loans, and the U.S. net international investment position has moved from -20% of GDP in 2010 to -89%. Almost all of that swing reflects valuation gains on U.S. stocks rather than added borrowing.
Global Trade Imbalances: Actual Problems, Unlikely Solutions— Foreign capital flowing into the US is shifting from government purchases of US Treasury bonds toward private foreign investment in US stocks and other riskier assets. This means a share of future gains from US productivity-enhancing investment will flow to these foreign investors, who are likely more willing to sell and exit if returns worsen.
