The other day the WSJ had an article pointing out that for the first time in 90 years, the US is paying more to its creditors than it is earning on its investments abroad. (WSJ subscription required)
"Our net international obligations are coming home to roost," says Catherine Mann, a senior fellow at the Institute for International Economics. "It's as if on our personal MasterCards we have run up large obligations and never had to make payments. You can't believe that's going to last forever."If the trend persists, it could also raise concerns about the nation's creditworthiness, putting pressure on the U.S. currency.
Brad Setser at RGEMonitor follows up the idea behind this WSJ article by saying that this deterioration has just begun and that he thus expects it to continue.
US lending abroad is very short-term, so it reprices more quickly. The implied interest rate on US external lending fell faster when US interest rates were falling. And it is now rising faster when US interest rates are rising. ...
Alas, with the Fed on hold, the interest rate the US gets on its external lending won’t continue to grow. And barring a miracle, the average cost of US external borrowing will continue to climb. The net result: a further $60b deterioration in the income balance.
The post goes into further ways to look at this, please refer to the link above. But essentially, in terms of the previous WSJ article, RGE sees this recent shift to continue as the US cost of debt catches up with its return on investments abroad.
Comments