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April 2009 |
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On the whole, the deterioration of the US net foreign asset position can roughly be estimated to be more than 15 percent of GDP between end-2007 and end-2008. Since the beginning of the crisis, the balance sheet of the US economy has deteriorated due to two strong valuation effects:
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- The dollar appreciation during the second half of 2008 (+13% in real effective terms) has devalued foreign assets held by US residents, generally denominated in foreign currencies, while the US foreign debt, denominated in dollar, has remained the same.
- The stock markets collapse all around the world has devalued the US asset net portfolio; the US being globally “long” in assets (but “short” in bonds).
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| Indeed, before the crisis, the US net foreign asset position already showed an important deficit and was much lower than what would be expected given the US level of development and demography (graph). The on-going fall leads to some skepticism about the strong-dollar view; nevertheless forecasting the evolution of the dollar appears particularly hazardous today. On the one hand, early signs of recovery in the United States, China and on commodity markets play in favor of a strong dollar. On the other hand, global imbalances are still a topical question. Although the recovery of the US private saving rate has allowed for the absorption of a part of the US current account deficit, the abrupt deterioration of public finances could lead to a new fall of the trade balance. |
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Graph: The US net foreign asset position (% of GDP)
Note: NFA1 and NFA2 are two alternative assessments of the US net foreign asset position. NFAC is the equilibrium net foreign asset position to GDP ratio, obtained from US fundamentals (demography, development, public debt).
Source : Bénassy-Quéré, Béreau and Mignon (2008). |
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| The Dollar in the Turmoil, A. Bénassy-Quéré, S. Béreau, and V. Mignon, CEPII Working Paper 2009-08, 2008. |
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