Saving and Investment

America: Haven For World's Capital

Americans are investing less abroad than foreigners are investing in the U.S. -- creating a surplus in U.S. capital accounts. This worries some, but other economists say the situation is certainly more cause for rejoicing than alarm.

  • Last year the U.S. attracted some $548 billion from abroad, mostly from private investors who went into Treasury securities -- versus $352 billion invested abroad by Americans.

  • The negative side of foreign investment, from the U.S. viewpoint, is that Americans aren't saving enough to finance domestic investment.

  • In contrast, the 1980s tax cuts resulted in foreigners sending 9 percent more money into the U.S. during 1982 to 1984 -- while Americans kept more of their money at home, causing capital outflows to plummet by more than 80 percent.

Thus both foreign and domestic investors found the U.S. the best market in which to invest.

Those concerned about a capital accounts surplus in the U.S. think the "cure" is for other nations to reform their economies, then perform better -- or for the U.S. to have a recession. Other economists say those cures for the U.S. capital accounts surplus are much worse than the "problem."

Source: Perspective, "The Buck Stops Here," Investor's Business Daily, August 25, 1997.

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