>People always say that foreigners keep funding our current account
>deficit because the returns on investments in the US are so much
>higher than in the rest of the world.
>
>But why, then, are America's debt service payments on its external
>liabilities so small compared to the size of the liabilities? Here's
>what Fred Bergsten says:
>
>"These payouts are surprisingly small so far, amounting to only
>about $14 billion in 2001, because foreign investment by Americans
>yields a substantially higher return than foreigners' investments
>here."
>
>So if returns on investments in the US are actually much *lower*
>than investments abroad, why does the US keep sucking up so much of
>the world's capital?
>
>Could a major reason be that countries are being semi-coerced into
>putting a lot of their savings into low-yielding short-term US
>debt and bank deposits in order to build up forex reserves that
>protect them from exchange rate swings?
Is Bergsten talking about direct investment or portfolio investment. If it's portfolio, I can't see how you can get around market interest rates. But if it's direct, the reason mainly is that U.S. investments happened long ago, whereas foreigners' investments in the U.S. are more recent. They paid higher prices and they've got startup costs to contend with.
Doug