Overseas income

There is a lot of information about the financing of the US external deficit. AS part of this is clearly due to financing in low yield reserve currency which is in demand because of its liquidity. However, as Gournichas and Rey show in From World Banker to World Venture Capitalist: US External Adjustment and the Exhorbitant Priveledge this is also about the returns that are achieved on the same assets. US FDI returns are much in excess of the returns that foreigners achieve in the US. HBS Working Knowledge suggest that this is partly because of the tough condtions that exist in the US. There is no low hanging fruit.

Another reason that financing the US deficit may be easier than had been feared is that sovereign wealth funds should probably not be seen as 'smart money'. These, after all, are government departments. Jory, Perry and Hemphill find that SWF investments announcements have not noticable effect on the price of the stock that they have bought and that, in the long run (for what it is worth in these cases) they have under=performed the overall stocks and the financial sector.