New York Fed warns on $69 trillion foreign investment burden as U.S. debt grows by $5 billion a day
For decades, the United States benefited from an unusual financial arrangement: even while owing the rest of the world massive sums, it still managed to earn more from overseas investments than it paid out to foreign investors. That long-standing edge, however, is beginning to disappear.
Economists at the Federal Reserve Bank of New York warned in a recent blog post that the U.S. international balance sheet has deteriorated sharply in recent years, creating what they described as a mounting “servicing burden” on the economy. Foreign investors now hold nearly $69 trillion in U.S. financial assets, while Americans hold about $41 trillion abroad, leaving the nation with a deeply negative net international investment position of roughly $28 trillion.
The imbalance reflects decades of trade deficits, rising foreign ownership of U.S. assets, and surging American equity valuations that have increased the value of those holdings.
The U.S. once earned more than it paid abroad.
Historically, the country’s debtor status was less concerning because American investors generated strong returns on overseas assets. The New York Fed referred to this as the U.S. “rate of return advantage.”
That advantage allowed the U.S. to offset the growing amount of foreign-owned American assets with profitable investments abroad. In 2019 alone, the U.S. collected roughly $260 billion more in investment income than it paid to overseas asset holders.
The Congressional Budget Office had previously attributed that edge to several factors, including the profitability of U.S. subsidiaries abroad and the tendency of American investors to pursue higher-risk, higher-return investments overseas.
For years, this dynamic softened the blow of America’s growing liabilities and helped preserve confidence in the dollar and broader financial system.
Net investment income has nearly vanished
According to the Fed researchers, the picture has changed dramatically over the last two years.
The U.S. net investment income surplus has hovered close to zero recently, meaning the country is no longer earning enough overseas to comfortably offset the growing payouts owed to foreign investors. Economists pointed to several causes behind the erosion, including higher interest rates and soaring U.S. asset prices.
As foreign investors own a significant portion of American stocks, rising equity valuations increase the value of those holdings and enlarge the amount of income flowing overseas. At the same time, higher rates have sharply increased the payments the U.S. owes on interest-bearing liabilities.
The result is that larger amounts of capital are now leaving the country while domestic investors are barely breaking even on overseas returns.
Chronic trade deficits continue to deepen the problem.
The Fed identified persistent trade deficits as one of the primary forces worsening the U.S. international position.
For more than 50 years, the United States has imported more goods than it exports. To finance those deficits, the country has effectively sold financial assets to foreign investors.
Since 2019, overseas investors purchased approximately $11 trillion in U.S. assets, while Americans bought only around $6 trillion in foreign assets. That imbalance alone reduced the U.S. net international investment position by roughly $5.5 trillion, according to the Fed.
The dependence on foreign capital has become a structural feature of the American economy, allowing consumers and businesses to maintain spending levels even as trade deficits persist.
Booming stock markets are widening the imbalance
America’s powerful stock market rally has also contributed to the deteriorating balance sheet.
Foreign investors now own a record share of U.S. equities, with some economists estimating that international holders controlled roughly 18% of the American stock market last year.
As stock prices rise, the value of foreign-owned U.S. assets climbs alongside them, increasing the liabilities sitting on America’s international balance sheet. Since 2019, valuation gains alone have added another $10 trillion to the deterioration in the U.S. net position, according to Fed researchers.
Ironically, one of the strongest symbols of U.S. economic success; the booming equity market; is also magnifying the nation’s long-term financial exposure.
Higher interest rates are increasing capital outflows
The Fed also highlighted rising interest rates as a major factor behind the growing burden.
About $26 trillion of U.S. assets held by foreign investors are interest-bearing instruments, including Treasury securities, bank loans, and foreign deposits. As rates rise, the amount the U.S. must pay to service those obligations increases as well.
Researchers estimated that around $170 billion of the additional $240 billion in net payouts since 2021 stemmed directly from higher interest rates. According to the Fed’s calculations, every one percentage point increase in rates subtracts approximately $150 billion from the U.S. net income balance.
The growing liabilities mean monetary policy changes now carry greater consequences than they did just a few years ago.
“Profits, dividends, and interest payments that would otherwise accrue to domestic investors instead flow abroad. Given the need to sell U.S. assets to finance ongoing trade deficits, this servicing burden seems likely to mount,” the researchers wrote.
America’s debt load is climbing at a historic pace
The warnings about the international investment position come as the U.S. national debt continues to surge.
Treasury Department data showed the national debt recently surpassed $39 trillion, reaching $39,008,999,901,378.68 as of May 18. More than $1 trillion has been added since October 23, 2025; equivalent to roughly $5 billion per day.
The debt briefly crossed the $39 trillion threshold in March before dipping slightly and climbing back above it again.
The nation’s debt-to-GDP ratio now stands at roughly 123%, meaning total borrowing exceeds the size of the entire U.S. economy. Fiscal analysts increasingly warn that such levels could become difficult to sustain if borrowing costs remain elevated.
Economists and investors are sounding alarms. Concerns over America’s fiscal trajectory are intensifying among both policymakers and Wall Street leaders.
Bridgewater Associates founder Ray Dalio has repeatedly warned about the possibility of an economic “heart attack,” arguing that debt servicing costs could eventually crowd out essential government spending.
Meanwhile, Jamie Dimon recently suggested the bond market itself may ultimately force Washington to take fiscal discipline more seriously if investors demand higher yields to continue financing U.S. borrowing.
Interest payments on the national debt are already approaching levels comparable to combined federal spending on education and the military, underscoring how rapidly financing costs are climbing.
Treasury markets remain resilient despite concerns
Despite mounting worries, investors still largely view U.S. Treasuries as among the safest assets in the world.
Recent increases in long-term Treasury yields have been attributed more to inflation concerns than outright fears of a fiscal crisis. Still, the rise in 20- and 30-year Treasury yields toward levels not seen since the Great Recession has reignited debate over whether so-called “bond vigilantes” could eventually pressure policymakers into reducing deficits.
For now, global demand for U.S. debt remains strong, helping Washington continue financing its deficits at relatively manageable costs despite the country’s enormous borrowing needs.
Trump argues America’s assets outweigh its liabilities
President Donald Trump has acknowledged concerns surrounding the nation’s debt trajectory while promoting ideas such as tariffs and “golden visas” as potential ways to improve the fiscal outlook.
At the same time, Trump has argued that America’s overall wealth and natural assets should be considered when evaluating the debt burden.
Trump has suggested that the value of the country’s land, resources, and landmarks far exceeds its liabilities. “If you put down the value of these things, it’s like hundreds of trillions of dollars,” Trump said, adding that by that measure, “if you kept [the national debt] at $40 trillion, you’re way under-levered.”
Critics of rising deficits remain unconvinced by that argument, warning that financial markets may eventually lose patience if borrowing continues accelerating.
Fiscal watchdogs warn the window for action is narrowing
Fiscal policy advocates say the pace of borrowing underscores the urgency of reducing deficits before debt servicing costs spiral further.
Maya MacGuineas recently warned that the increasingly frequent debt milestones demonstrate “the need for us to get our fiscal situation under control.”
She added: “Markets will only tolerate our unsustainable borrowing for so long; the risk of a fiscal crisis gets higher as the days pass. We need deficit reduction urgently.”
Many economists argue that stabilizing the debt would require bringing annual deficits closer to 3% of GDP, roughly half current levels. Achieving that target, however, could require approximately $10 trillion in deficit reduction over the next decade.
As America’s foreign liabilities grow and the income advantage that once offset them disappears, policymakers may face increasingly difficult choices about trade, spending, borrowing, and economic growth in the years ahead.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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