Inter­con­nected Markets

by Econom­pic Data

In a recent con­ver­sa­tion with a friend, we dis­cussed how inter­con­nected global finan­cial mar­kets were (the con­ver­sa­tion began with my asser­tion that the Euro­pean sit­u­a­tion could cause a lot more pain the U.S. than con­sen­sus likely believes).

Below are a few charts that out­line just how inter­con­nected things have become.

The first chart shows the inter­na­tional invest­ment posi­tions of the U.S. (the level of U.S. owned assets abroad and for­eign assets owned within the U.S.). I nor­mal­ized the amounts by show­ing the level rel­a­tive to the size of the U.S. econ­omy. As can be seen, the level of own­er­ship both in and out of the U.S. has spiked since the early 1970's, with for­eign own­er­ship of assets within the U.S. increas­ing at a faster pace (U.S. owned assets abroad by almost 15% of GDP or more than $2 trillion).

The next chart out­lines what makes up that $2 tril­lion dif­fer­ence. While U.S. investors own more in terms of for­eign equity (direct invest­ment and stocks) than for­eign investors own within the U.S., for­eign investors are much larger cred­i­tors within both the pub­lic (gov­ern­ment) and pri­vate (cor­po­rate) sectors.

Rather than make any bold state­ment of what this truly means (I am try­ing to digest it myself), I'll instead leave read­ers with two (con­flict­ing) quotes:

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