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Sharecroppers or Shrewd Capitalists? Projections of the US Current Account, International Income Flows, and Net International Debt


  • John Kitchen


This paper presents a detailed framework and analysis to address whether the US is on track to becoming a society of "sharecroppers," paying a large and growing share of income to foreign owners of US assets, or rather is more likely to continue as a society of "shrewd capitalists" with the cost of servicing international debt remaining relatively low and manageable despite growing international debt. Various scenarios illustrate the reliability of the modeling framework and show how alternative future paths for key variables affect the outcomes. The relationships determining the international flows and relative debt levels-including relative rates of return, asset portfolio compositions, valuation effects, and the outlook for an improving US trade position-indicate that a manageable and sustainable outlook is more likely than often considered to be the case. Results also show, however, the extent to which the outlook is vulnerable to the loss of "exorbitant privilege." Copyright © 2007 The Author; Journal compilation © 2007 Blackwell Publishing Ltd.

Suggested Citation

  • John Kitchen, 2007. "Sharecroppers or Shrewd Capitalists? Projections of the US Current Account, International Income Flows, and Net International Debt," Review of International Economics, Wiley Blackwell, vol. 15(5), pages 1036-1061, November.
  • Handle: RePEc:bla:reviec:v:15:y:2007:i:5:p:1036-1061

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    References listed on IDEAS

    1. Matthew Higgins & Thomas Klitgaard & Cedric Tille, 2005. "The income implications of rising U.S. international liabilities," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Dec).
    2. C. Fred Bergsten & John Williamson (ed.), 2004. "Dollar Adjustment: How Far? Against What?," Peterson Institute Press: Special Reports, Peterson Institute for International Economics, number sr17, October.
    3. Juann H. Hung & Angelo Mascaro, 2004. "Return on Cross-Border Investment: Why Does U.S. Investment Abroad Do Better? Technical Paper 2004-17," Working Papers 16204, Congressional Budget Office.
    4. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47.
    5. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
    6. Carol C. Bertaut & William L. Griever, 2004. "Recent developments in cross-border investment in securities," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Win, pages 19-31.
    7. C. Fred Bergsten & John Williamson (ed.), 2004. "Dollar Adjustment: How Far? Against What?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number sr17.
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    Cited by:

    1. Stephanie E. Curcuru & Charles P. Thomas & Francis E. Warnock, 2009. "Current Account Sustainability and Relative Reliability," NBER Chapters,in: NBER International Seminar on Macroeconomics 2008, pages 67-109 National Bureau of Economic Research, Inc.
    2. Stephanie E. Curcuru & Tomas Dvorak & Francis E. Warnock, 2008. "Cross-Border Returns Differentials," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1495-1530.
    3. Ricardo Hausmann & Federico Sturzenegger, 2006. "Global Imbalances or Bad Accounting? The Missing Dark Matter in the Wealth of Nations," CID Working Papers 124, Center for International Development at Harvard University.
    4. Stephanie E. Curcuru & Charles P. Thomas, 2014. "The Return on U.S. Direct Investment at Home and Abroad," NBER Chapters,in: Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, pages 205-230 National Bureau of Economic Research, Inc.
    5. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2009. "Where did all the borrowing go? A forensic analysis of the U.S. external position," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 177-199, June.
    6. Ziesemer, Thomas, 2009. "Growth with imported resources: On the sustainability of U.S. growth and foreign debt," MERIT Working Papers 028, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    7. Barry Eichengreen, 2008. "Should there be a coordinated response to the problem of global imbalances? Can there be one?," Working Papers 69, United Nations, Department of Economics and Social Affairs.
    8. Eichengreen, Barry, 2006. "Global imbalances: The new economy, the dark matter, the savvy investor, and the standard analysis," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 645-652, September.
    9. Carol C. Bertaut & Steven B. Kamin & Charles P. Thomas, 2008. "How long can the unsustainable U.S. current account deficit be sustained?," International Finance Discussion Papers 935, Board of Governors of the Federal Reserve System (U.S.).
    10. Alexander D Klemm, 2013. "Growth Following Investment and Consumption-Driven Current Account Crises," IMF Working Papers 13/217, International Monetary Fund.
    11. Barry Bosworth & Susan Collins & Gabriel Chodorow-Reich, "undated". "Returns on FDI. Does the U.S. Really Do Better?," Working Paper 90801, Harvard University OpenScholar.
    12. John Kitchen & Menzie Chinn, 2011. "Financing US Debt: Is There Enough Money in the World – and at What Cost?," International Finance, Wiley Blackwell, vol. 14(3), pages 373-413, December.
    13. Phil Garton, 2007. "Asymmetric investment returns and the sustainability of US external imbalances," Treasury Working Papers 2007-01, The Treasury, Australian Government, revised Feb 2007.
    14. Krishnakumar S, 2015. "Global Imbalances and Bretton Woods II Postulate," Working Papers id:6567, eSocialSciences.

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