Business Economics • January 2007 29 Borrowing Without Debt? Understanding the U.S. International Investment Position Matthew Higgins is an economist and Assistant Vice President at the Development Studies Function of the Federal Reserve Bank of New York. He has written on issues related to international trade and capital flows, and foreign exchange and monetary policy. He received a Ph.D. in economics from Harvard University in 1994, and an A.B. in philosophy from Princeton University in 1983. Cedric Tille is a Senior Economist at the International Research Function of the Federal Reserve Bank of New York. His has written on several issues related to external assets and liabilities, and their implications for the current account and international adjustment. His work encompasses both theoretical and applied aspects. He received his Ph.D. in economics from Princeton University. Borrowing Without Debt? Understanding the U.S. International Investment Position ALTHOUGH THE U.S. PAYMENTS POSITION MAY NOT BE AS WEAK AS COMMONLY THOUGHT, THE FACTORS THAT BOLSTER IT ARE LIKELY TO BE TEMPORARY. By Matthew Higgins, Thomas Klitgaard, and Cédric Tille Sustained large U.S. current account deficits have led some economists and policymakers to worry that future current account adjustment could occur through a sud- den and disruptive depreciation of the dollar and a sharp drop in U.S. consumption. Two factors that, to date, have cast doubt on such concerns are the stability of U.S. net external liabilities and the minimal net income payments made by the United States on these lia- bilities. We show that the stability of the external position reflects sizable capital gains stemming from strong for- eign equity markets and a weaker dollar—conditions that could be reversed in the future. We also show that while minimal U.S. net income payments reflect a much The views presented are those of the authors, and do not represent the views of the Federal Reserve Bank of New York or the Federal Reserve System. This paper was presented at the NABE Annual Meeting on September 10, 2006.