Edward Conard

Top Ten New York Times Bestselling Author

  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

AI Summary. Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.

Eswar Prasad Foreign Affairs
Date Posted:

.@EswarSPrasad argues that there isn’t a viable alternative to the dollar as a reserve currency. “The story of the dollar is, ultimately, less about the United States’ strength than about the rest of the world’s weaknesses.”

How has the world's exposure to dollar-denominated assets changed?

Core argument: The U.S. net debtor position to the rest of the world tripled from $6 trillion in 2014, as foreign liabilities rose from $30 trillion to more than $51 trillion by early 2024 while U.S. foreign assets grew from $24 trillion to just $33 trillion.

Foreign investors hold more financial assets in the United States than American investors hold abroad, meaning the United States is a net debtor to the rest of the world. U.S. liabilities to the rest of the world are denominated in dollars, with many foreign investors willing to accept low returns in exchange for the safety of the dollar. American investors, by contrast, have been willing to bet on foreign assets that are mostly denominated in foreign currencies because those assets yield higher returns even if they are riskier. If the world turned away from the dollar and sent its value plummeting relative to other currencies, foreigners would take a beating on the value of their dollar-denominated assets when converted back to their home currencies. In light of this scary scenario, countries around the world should surely have reduced their exposure to the “dollar trap.” But they have done just the opposite. From 2014 to the beginning of 2024, U.S. foreign liabilities grew from $30T to more than $51T, while U.S. assets grew from $24T to just $33T. In other words, the United States was a net debtor to the rest of the world to the tune of $6T in 2014—and that amount has tripled over the last decade. The United States now has the rest of the world in an even tighter chokehold.

Takeaways by Macro Roundup® AI

  1. The U.S. net debtor position to the rest of the world tripled from $6 trillion in 2014, as foreign liabilities rose from $30 trillion to more than $51 trillion by early 2024 while U.S. foreign assets grew from $24 trillion to just $33 trillion.
  2. U.S. liabilities to the rest of the world are denominated in dollars, with many foreign investors accepting low returns in exchange for the dollar's safety, while American investors hold higher-yielding, riskier assets abroad mostly denominated in foreign currencies.
  3. A world turning away from the dollar and sending its value plummeting would hit foreigners converting dollar-denominated assets back into home currencies, yet countries have increased rather than reduced their exposure to this "dollar trap.".

Related Articles:

  • Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves — Gold accounts for about 10% of aggregate official foreign exchange reserves, roughly its level in the early 2000s. International Monetary Fund country data indicate most added official gold holdings came from a few central banks, with over half of reported accumulation from China and Russia and about a quarter from several emerging markets.
  • China Sells Record Sum of US Debt Amid Signs of Diversification — China sold a record $53.3bn of US Treasury and agency bonds in a single quarter, a sign of diversification away from American assets amid persistent trade tensions. Belgium, often viewed as a custodian of Chinese holdings, disposed of $22bn of Treasuries over the same period.
  • Power and Financial Interdependence — US-China financial interdependence creates what has been called a "balance of financial terror," in which the US relies on other countries' costs of not financing its current account deficit as assurance that financing continues. Chinese policymakers worry that dollar holdings expose China to financial sanctions, while the US has feared Chinese sales of Treasuries could threaten its financial stability.
Showing 247 database articles primarily about Financial Markets