One Chart That Keeps Me Awake At Night!

Has something ever popped into your head at all hours of the day, like a song melody, that you can’t seem to shake?

I’m a believer in the value of problem solving by “sleeping on it.” The brain does great work. Many times, I wake up with the “aha moment” I was searching for, the answer magically appears….

Not this time – I’m still fretting over this one…. In mid-July, this WHVP Facebook post, What One Chart Tells Us About the US Economy grabbed my attention.

I phoned author Urs Drose. Several emails followed.

What does the chart tell us?

How do we sort through possible implications and not jump to the wrong conclusion?

What action, if any, should investors take to protect themselves, and potentially profit from the knowledge?

We had as many questions as possible answers. He gave me permission to quote as necessary, so let’s get started:

“A single chart has been making the rounds in financial circles. It tracks the Net International Investment Position (NIIP) of several major economies from 1980 to today.

One line stands out sharply from the rest: the United States.

…. Understanding what this chart shows, and what it does not show, is worth a few minutes of reflection.

It is not a prediction of crisis. It is not a political statement. It is a structural data point that helps explain how the U.S. economy has changed over the past four decades….

…. The Net International Investment Position measures the difference between a country’s foreign financial assets and its foreign financial liabilities.

…. It answers the question: does a country own more abroad than foreigners own within it, or the other way around?

A positive NIIP means a country is a net creditor. Its residents, companies, government, and institutions own more foreign assets than foreign investors own in that country.

A negative NIIP means the opposite. Foreign investors own more assets in that country than the country owns abroad.

These assets and liabilities can include government bonds, corporate bonds, equities, direct investments, real estate, banking claims, reserve assets, and other financial holdings. …. The NIIP acts like a national balance sheet between one country and the rest of the world.

Switzerland, Japan, and China all sit in positive territory. The United States does not.”

In 1980 the US was the largest creditor nation in the world. In the last 45 years things changed radically; foreign investors hold a net $27.54 trillion more in US investments than the US holds worldwide.

Urs explains – with caution:

“When a country runs a persistently negative NIIP, it means a growing share of its assets, its companies, its real estate, its government debt, is owned by foreign investors. The country becomes more dependent on continued foreign investment to fund its consumption and government spending.”

…. It is important to be precise here.

A negative NIIP does not mean a country is bankrupt.

It does not mean foreign investors are about to abandon U.S. markets.

It also does not mean the U.S. economy is weak.

…. Part of the reason the United States has such a large negative NIIP is because global investors continue to want exposure to U.S. assets.

The U.S. dollar remains the world’s dominant reserve currency. U.S. capital markets are deep and liquid. U.S. companies, especially in technology and innovation, remain among the most widely held in the world.

…. A large negative NIIP can reflect confidence in U.S. markets.”

OK, OK, TIME OUT!

The total net investment dollars are overwhelming. Over $27 trillion split between financing our government debt, and investing in private sector businesses providing profits for their owners worldwide. Let’s break it down….

Total US government debt is approaching $40 trillion. The Peter G. Peterson Foundation explains that currently about 1/3 of the total, (Around $13 trillion) is owned by foreigners.

Over the last decade, China reduced their holding of US debt by almost half, while Europe has picked up much of the slack.

Investors worldwide, buying long-term debt (both public and private) are primarily concerned about three things:

a) the real rate of return,

b) expected inflation

c) the risk premium (creditworthiness of the borrower).

We regularly harp about the “unsustainable” US debt eventually leading to a dollar collapse. The metric calculating debt versus the Gross Domestic Product (GDP) of the nation is commonly cited.

Statistics of the World ranks nations using this metric. Here’s the top 20:

Japan is second in debt to GDP, over 200%. The US is 11th. I scrolled down to #137 to find Switzerland (38.5%).

In 2023 Argentina was at 154.6%. Today they rank 53rd at 70.4%. Argentina’s president, Javier Milei was sworn into office in December 2023 and kept his political promise.

The US political system is maddening! Switzerland shows us common sense can prevail – and, as socialist and corrupt as Argentina was, political change is possible.

Today the US relies heavily on foreigners to buy our debt to support the political deficit spending folly. Historically, frivolous empires and currencies eventually collapse. The US is not immune to the laws of economics. As we wait for things to play out in the US, we must do all we can to protect our accumulated wealth.

The positive side

After deducting foreign investment in treasuries, there’s still trillions invested in US assets; foreigners want exposure to US investments and markets.

We lived in Phoenix when Taiwan Semiconductor invested $12 billion to build a chip plant in our area. They are now adding another $100 billion. The area is booming.

Near our Indiana home there’s a huge Toyota plant, creating thousands of jobs, contributing to a positive lifestyle for our community.

President Trump campaigned on tariffs and fair trade. Most countries want to easily sell their goods in the US, creating jobs for their people, and a positive lifestyle for all. Others placed tariffs on US products, not allowing honest access to their markets.

Trump renegotiated…. Some tariff adjustments were made, however, several foreign companies agreed to invest billions in the US, creating jobs and leveling the playing field. While the system is far from perfect, a reset in trade agreements is taking place.

In my opinion…    

I’m in favor of foreign investments in the US – if there are benefits for all concerned. When you cut through the political crap, international relations and commerce rely heavily on confidence that both parties will honor their commitments.

It’s somewhat easy for creditors to reduce their share of US treasuries. Unwinding from trillions invested in plants and production facilities is very difficult. Much like a divorce, everyone generally loses a lot in the process.

Japan holds the most US treasuries and also has billions invested in production facilities throughout the country. While politicians can make things difficult, it is in everyone’s best interest to keep both economies healthy. A healthy economy makes reelection easier – everywhere!

Special Offer ONLY for Miller On The Money Readers! As you know, I’ve mentioned Richard Maybury’s Early Warning Report often, and I’ve been a reader for many years. Richard’s world outlook is unique, and his letter provides great education you will not find elsewhere! For a limited time, he is offering Miller on The Money readers a phenomenal deal. Click here right now to subscribe for just $99. This saves you $201 OFF the regular subscription price! You’ll immediately be emailed the current issue and 4 FREE Special Reports. I encourage you to click here and take advantage of his special offer while you still can.

Might this time be different?

I don’t see US politicians stopping their ridiculous deficit spending anytime soon. Currencies, and empires, collapse. Yet, for many decades, I’ve seen thousands of impending doom and gloom predictions.

Politicos avoid difficult decisions at all costs. When a crisis occurs, their knee-jerk reactions seldom fix the underlying problem.

Politicians of all flavors scream Social Security needs to be fixed – but it never happens. The Social Security trust fund is scheduled to run out of money in 2033. If they do nothing (very likely), BY LAW, social security benefits must be reduced. When it happens, they’ll deflect responsibility, while blaming their political opponents. That could trigger a reckoning….

While a reset will impact our standard of living, might there be one possible difference? Foreign creditors (business partners) have a net $27.5 trillion invested in the US. The world has much to lose if the US goes into another Great Depression, or experiences a socialist takeover, resulting in higher business taxes and possible nationalizing of companies altogether.

Investment Implications??

The trend line in the WHVP chart concerns me.

We once sold our home to an Argentine buyer. I asked why so many Argentinians were investing in the US while our inflation is high?

He reminded me of the old joke about seeking out the best-looking chick at the bar at closing time. He grinned and said, “Compared to Argentina, the US dollar is looking pretty good!”

Rethinking diversification approach

Prudent investors diversify so no loss from any single investment severely impacts your overall net worth and lifestyle – don’t want all your eggs in one basket…. One country is still one basket.

Investors seek a good rate of return after inflation, in a safe country with a stable government. Maybe starting at the bottom of the debt/GDP list looking for safe opportunities? The bar is still open, we still have time to look elsewhere.

While Switzerland offers excellent opportunities, Urs emphasizes not having all your eggs in that basket either. He has us invested in 8 different currencies, over three continents, including some short-term US treasuries. In addition, he emphasizes owning precious metals.

US investors own $27.5 trillion less offshore than the rest of the world owns here. Are foreign investors trying to tell US investors something?

The trend line is telling us something. Other than owning precious metals, what might I be missing? The dollar may collapse, but many citizens will still prosper.

Feel free to share your thoughts with other readers in the comments section below; we are all in this together.

Help keep us online! I love it when readers thank me for “telling it like it is” for providing content they won’t find in the mainstream media. I’ve been sent to Facebook purgatory a few times – they didn’t approve. Free speech isn’t appreciated in all circles. When I started Miller On The Money, I vowed to keep our newsletter FREE! I’ve kept my promise – our weekly letter is an expensive hobby. Donations are our primary source of financial support, and what keeps us going. We don’t peddle your name to anyone. I’ve turned down proposals from advertisers, feeling their offerings were inappropriate for our readers. Readers pitching in to help offset our cost are much appreciated. It’s strictly voluntary – no pressure – no hassle! If you want to help, click the DONATE button below. You do not have to sign up for PayPal to use your credit card. And thank you all!

On The Lighter Side…

I did a double take the other night when playing cards with our good friends, the Johnsons… They are avid Indiana University football fans. In a few short weeks, our television sets will be blaring hundreds of college football games for our entertainment.

The discussion was Ohio State held the #1 spot in preseason rankings, and Indiana was ranked #6. That stopped me for a second. Other than the last couple years, IU fans never thought much about national ranking. Much like us Northwestern fans, we just hoped for a fun, competitive season. Two years ago, IU hired a new coach, and he not only brought them a national championship, he also totally changed the expectations of their fans.

Today, no matter where you go, IU loyalty is proudly displayed. That isn’t just Indiana, we see it all over The Villages, Florida also. IU football snuck up on the world the last couple years; but not anymore. In-state rival Notre Dame is ranked #4; let the games begin….

A heads up! I may be taking a couple weeks off. All is fine, no worries….

Quote of the Week…

“This country has gotten where it is in spite of politics, not by the aid of it. That we have carried as much political bunk as we have and still survived shows we are a super nation.” —Will Rogers, November 1, 1932

(Looks like not much has changed in the last 94 years)

And Finally…

My wife Jo shares some famous quotes for our enjoyment:

“You could not step twice into the same river.” — Heraclitus

“We have two ears and one mouth, so we should listen more than we speak.” — Zeno of Citium

“Fate guides the willing, but drags the unwilling.” — Cleanthes

“There could be no justice, unless there were also injustice; no courage, unless there were cowardice; no truth, unless there were falsehood.” — Chrysippus

“Let your desires be ruled by reason.” — Cicero

“I begin to speak only when I’m certain what I’ll say isn’t better left unsaid.” — Cato the Younger

“We suffer more often in imagination than in reality.” — Seneca

“If you accomplish something good with hard work, the labor passes quickly, but the good endures; if you do something shameful in pursuit of pleasure, the pleasure passes quickly, but the shame endures.” — Musonius Rufus

“Men are disturbed not by things but by the principles and notions which they form concerning things.” — Epictetus

And my favorite:

• “You have power over your mind — not outside events. Realize this, and you will find strength.” — Marcus Aurelius

Until next time…

Dennis Miller

“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken

 

Affiliate Link Disclosure – This post contains affiliate links. If you make a purchase after clicking these links, we will earn a commission that goes to help keep Miller on the Money running. Thank you for your support!