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

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.”