{"id":"6fc3172fc15b915e7a9ac5cd9c0fa4c9b5de02733b5cb7a58bc20f6ffe0c727d","title":"Matthew Higgins and Thomas Klitgaard argue in Liberty Street Economics that the U.S. income surplus is shrinking","argument":"Matthew Higgins and Thomas Klitgaard published this analysis on May 18, 2026, in Liberty Street Economics. They trace the shrinking U.S. income surplus to higher interest rates after the pandemic and continued sales of U.S. assets to foreign investors. Although U.S. holdings abroad are smaller than foreign holdings in the United States, income from foreign direct investment and portfolio equity has helped offset a persistent deficit on interest-bearing assets. The authors say higher interest rates increased net interest payments, bringing the income balance close to zero in 2024 and 2025. They argue that the need to sell U.S. assets to finance trade deficits means payments flowing abroad are likely to mount. A larger gap between U.S. assets and liabilities in interest-bearing assets also makes the income balance more sensitive to rate changes: the authors estimate that a one percentage point rate rise would subtract $150 billion from it. They note that one percentage point fall would bring a similar improvement. The authors do not resolve whether the U.S. advantage in foreign direct investment returns reflects a statistical illusion or corporate tax strategies. How will changes in interest rates affect the U.S. income balance as its net liabilities grow?","topicIds":["investment-booms-and-busts"],"domain":"other","claimType":"attributed reading","limits":"Text as retrieved on October 30, 2026; originally published May 18, 2026. Higgins and Klitgaard do not resolve the debate over whether the U.S. advantage in foreign direct investment profitability reflects a statistical illusion or corporate tax arbitrage strategies.","speaker":{"name":"Federal Reserve Bank of New York","roleAtSource":"Publisher"},"source":{"title":"Honey, Who Shrunk the U.S. Income Surplus?","publisher":"Federal Reserve Bank of New York","format":"Article","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","publishedAt":"2026-05-18T11:00:00.000Z","dateBasis":"Date supplied by the publisher’s feed."},"evidence":[{"text":"Higgins and Klitgaard attribute the fading U.S. net investment income surplus to higher interest rates after the pandemic and continued net sales of U.S. assets to foreign investors.","excerpt":"We show that the fading of the net investment income surplus stems from the upward shift in interest rates in the aftermath of the pandemic along with the continued net sales of U.S. assets to foreign investors.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"},{"text":"The authors say net interest payments increased after the pandemic, with the interest balance reaching a deficit of $450 billion last year.","excerpt":"Net interest payments have swelled since the pandemic, with the interest balance reaching -$450 billion last year.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"},{"text":"The authors argue that payments to foreign investors are a servicing burden and are likely to mount as the United States sells assets to finance trade deficits.","excerpt":"Given the need to sell U.S. assets to finance ongoing trade deficits, this servicing burden seems likely to mount.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"},{"text":"The authors estimate that a one percentage point rise in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance.","excerpt":"At present, with the asset-liability gap at -$15 trillion, a 1 percentage point increase in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"},{"text":"Higgins and Klitgaard leave unresolved whether the U.S. advantage in foreign direct investment profitability reflects a statistical illusion or corporate tax strategies.","excerpt":"some observers arguing that it represents a statistical illusion, perhaps from corporate tax arbitrage strategies. This debate has been ongoing for more than three decades—see our earlier work—and we do not propose to settle it here.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"}],"sourceMedia":{"status":"unchecked","sourceUrl":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","checkedAt":null,"items":[]},"assumptions":[],"openQuestion":{"attribution":"Open question","text":"How will changes in interest rates affect the U.S. income balance as its net liabilities grow?"},"whatWouldChangeView":{"attribution":"Change condition not recorded","text":""},"editorialComparisons":[],"live":{"title":"Matthew Higgins and Thomas Klitgaard argue in Liberty Street Economics that the U.S. income surplus is shrinking","summary":"Matthew Higgins and Thomas Klitgaard published this analysis on May 18, 2026, in Liberty Street Economics. They trace the shrinking U.S. income surplus to higher interest rates after the pandemic and continued sales of U.S. assets to foreign investors. Although U.S. holdings abroad are smaller than foreign holdings in the United States, income from foreign direct investment and portfolio equity has helped offset a persistent deficit on interest-bearing assets. The authors say higher interest rates increased net interest payments, bringing the income balance close to zero in 2024 and 2025. They argue that the need to sell U.S. assets to finance trade deficits means payments flowing abroad are likely to mount. A larger gap between U.S. assets and liabilities in interest-bearing assets also makes the income balance more sensitive to rate changes: the authors estimate that a one percentage point rate rise would subtract $150 billion from it. They note that one percentage point fall would bring a similar improvement. The authors do not resolve whether the U.S. advantage in foreign direct investment returns reflects a statistical illusion or corporate tax strategies. How will changes in interest rates affect the U.S. income balance as its net liabilities grow?","question":"How will changes in interest rates affect the U.S. income balance as its net liabilities grow?","claims":[{"text":"Higgins and Klitgaard attribute the fading U.S. net investment income surplus to higher interest rates after the pandemic and continued net sales of U.S. assets to foreign investors.","excerpt":"We show that the fading of the net investment income surplus stems from the upward shift in interest rates in the aftermath of the pandemic along with the continued net sales of U.S. assets to foreign investors.","support":"source-stated"},{"text":"The authors say net interest payments increased after the pandemic, with the interest balance reaching a deficit of $450 billion last year.","excerpt":"Net interest payments have swelled since the pandemic, with the interest balance reaching -$450 billion last year.","support":"source-stated"},{"text":"The authors argue that payments to foreign investors are a servicing burden and are likely to mount as the United States sells assets to finance trade deficits.","excerpt":"Given the need to sell U.S. assets to finance ongoing trade deficits, this servicing burden seems likely to mount.","support":"source-stated"},{"text":"The authors estimate that a one percentage point rise in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance.","excerpt":"At present, with the asset-liability gap at -$15 trillion, a 1 percentage point increase in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance.","support":"source-stated"},{"text":"Higgins and Klitgaard leave unresolved whether the U.S. advantage in foreign direct investment profitability reflects a statistical illusion or corporate tax strategies.","excerpt":"some observers arguing that it represents a statistical illusion, perhaps from corporate tax arbitrage strategies. This debate has been ongoing for more than three decades—see our earlier work—and we do not propose to settle it here.","support":"source-stated"}],"limitations":["Text as retrieved on October 30, 2026; originally published May 18, 2026.","Higgins and Klitgaard do not resolve the debate over whether the U.S. advantage in foreign direct investment profitability reflects a statistical illusion or corporate tax arbitrage strategies."],"mediaId":null,"correctionReason":null,"id":"6fc3172fc15b915e7a9ac5cd9c0fa4c9b5de02733b5cb7a58bc20f6ffe0c727d","publicationId":"717425fb-93ad-c2ac-3cf3-df7092bcac2e","version":1,"sourceUrl":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","sourceTitle":"Honey, Who Shrunk the U.S. Income Surplus?","publisher":"Federal Reserve Bank of New York","publishedAt":"2026-05-18T11:00:00.000Z","originalPublished":{"value":"2026-05-18T11:00:00.000Z","precision":"instant","basis":"backfill:feed_published"},"firstObservedAt":"2026-10-30T19:56:16.390Z","createdAt":"2026-11-07T03:13:28.560Z","historical":true,"entityIds":[],"topicIds":["investment-booms-and-busts"],"media":[],"sourceMedia":{"status":"unchecked","sourceUrl":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","checkedAt":null,"items":[]},"editorialDecision":{"outcome":"accept","mediaId":null,"inputHash":"3541e406bbc4b942a7b1fc2736fb9abb400b50ad4825fcaacf9e928bf335debe","rubricVersion":"em-backfill-context/3","provider":"typesafe","model":"jev-1.13.0","reasonCodes":["bridge_admitted_by_model"],"confidence":0.97,"decidedAt":"2026-10-30T19:56:15.011Z"},"provenance":{"textHash":"2426620a13cd515ee86a0ec12ac6260e5e8ad85a73e7f98b11d01e1fbc0c2792","observationId":"1538feee2f4866445033c80a3c89ae69bbc8b0cf47135e88cb4bd39b051760be","retrievedAt":"2026-10-30T21:11:47.083Z","kind":"publisher-page","preparer":{"model":"openai/gpt-6-luna","runId":"feb8a91d-2d58-730c-d32c-ba1cabc46dca"},"reviewer":{"model":"anthropic/claude-opus-5.5","runId":"e6bb80e9-c44d-0f20-c1ec-b510cddca562"}},"audit":{"status":"uncertain","reviewedAt":"2026-11-07T03:09:11.163Z","model":"anthropic/claude-opus-5.5"}},"canonicalUrl":"https://escapemeridian.com/readings/matthew-higgins-and-thomas-klitgaard-argue-in-liberty-street-6fc3172f","formats":{"html":"/readings/matthew-higgins-and-thomas-klitgaard-argue-in-liberty-street-6fc3172f","markdown":"/readings/matthew-higgins-and-thomas-klitgaard-argue-in-liberty-street-6fc3172f.md","json":"/readings/matthew-higgins-and-thomas-klitgaard-argue-in-liberty-street-6fc3172f.json"},"attribution":"Headline and summary by Escape Meridian, prepared by Luna from the attributed source. A source check is not independent confirmation of the source’s claims.","maintainedGuideLinks":[],"readerContext":{"version":"reader-context-v1","attribution":"Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement.","terms":[],"entities":[]},"researchQuestions":[],"withdrawn":false,"references":{"schemaVersion":1,"target":{"type":"reading","id":"6fc3172fc15b915e7a9ac5cd9c0fa4c9b5de02733b5cb7a58bc20f6ffe0c727d","revision":"717425fb-93ad-c2ac-3cf3-df7092bcac2e","revisionKind":"publication-id","title":"Matthew Higgins and Thomas Klitgaard argue in Liberty Street Economics that the U.S. income surplus is shrinking","url":"https://escapemeridian.com/readings/matthew-higgins-and-thomas-klitgaard-argue-in-liberty-street-6fc3172f"},"source":{"type":"source","id":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","revision":"2426620a13cd515ee86a0ec12ac6260e5e8ad85a73e7f98b11d01e1fbc0c2792","revisionKind":"sha256-source-text","title":"Honey, Who Shrunk the U.S. Income Surplus?","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/"},"status":"available","items":[],"next":null,"scope":"Explicit citations in public readings and public file attachments to this reading. Shared topics are not citations. Other artifact types need an explicit reference adapter."},"revisions":[{"id":"6fc3172fc15b915e7a9ac5cd9c0fa4c9b5de02733b5cb7a58bc20f6ffe0c727d","title":"Matthew Higgins and Thomas Klitgaard argue in Liberty Street Economics that the U.S. income surplus is shrinking","argument":"Matthew Higgins and Thomas Klitgaard published this analysis on May 18, 2026, in Liberty Street Economics. They trace the shrinking U.S. income surplus to higher interest rates after the pandemic and continued sales of U.S. assets to foreign investors. Although U.S. holdings abroad are smaller than foreign holdings in the United States, income from foreign direct investment and portfolio equity has helped offset a persistent deficit on interest-bearing assets. The authors say higher interest rates increased net interest payments, bringing the income balance close to zero in 2024 and 2025. They argue that the need to sell U.S. assets to finance trade deficits means payments flowing abroad are likely to mount. A larger gap between U.S. assets and liabilities in interest-bearing assets also makes the income balance more sensitive to rate changes: the authors estimate that a one percentage point rate rise would subtract $150 billion from it. They note that one percentage point fall would bring a similar improvement. The authors do not resolve whether the U.S. advantage in foreign direct investment returns reflects a statistical illusion or corporate tax strategies. How will changes in interest rates affect the U.S. income balance as its net liabilities grow?","topicIds":["investment-booms-and-busts"],"domain":"other","claimType":"attributed reading","limits":"Text as retrieved on October 30, 2026; originally published May 18, 2026. Higgins and Klitgaard do not resolve the debate over whether the U.S. advantage in foreign direct investment profitability reflects a statistical illusion or corporate tax arbitrage strategies.","speaker":{"name":"Federal Reserve Bank of New York","roleAtSource":"Publisher"},"source":{"title":"Honey, Who Shrunk the U.S. Income Surplus?","publisher":"Federal Reserve Bank of New York","format":"Article","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","publishedAt":"2026-05-18T11:00:00.000Z","dateBasis":"Date supplied by the publisher’s feed."},"evidence":[{"text":"Higgins and Klitgaard attribute the fading U.S. net investment income surplus to higher interest rates after the pandemic and continued net sales of U.S. assets to foreign investors.","excerpt":"We show that the fading of the net investment income surplus stems from the upward shift in interest rates in the aftermath of the pandemic along with the continued net sales of U.S. assets to foreign investors.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"},{"text":"The authors say net interest payments increased after the pandemic, with the interest balance reaching a deficit of $450 billion last year.","excerpt":"Net interest payments have swelled since the pandemic, with the interest balance reaching -$450 billion last year.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"},{"text":"The authors argue that payments to foreign investors are a servicing burden and are likely to mount as the United States sells assets to finance trade deficits.","excerpt":"Given the need to sell U.S. assets to finance ongoing trade deficits, this servicing burden seems likely to mount.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"},{"text":"The authors estimate that a one percentage point rise in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance.","excerpt":"At present, with the asset-liability gap at -$15 trillion, a 1 percentage point increase in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"},{"text":"Higgins and Klitgaard leave unresolved whether the U.S. advantage in foreign direct investment profitability reflects a statistical illusion or corporate tax strategies.","excerpt":"some observers arguing that it represents a statistical illusion, perhaps from corporate tax arbitrage strategies. This debate has been ongoing for more than three decades—see our earlier work—and we do not propose to settle it here.","url":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","relationship":"Source-stated"}],"sourceMedia":{"status":"unchecked","sourceUrl":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","checkedAt":null,"items":[]},"assumptions":[],"openQuestion":{"attribution":"Open question","text":"How will changes in interest rates affect the U.S. income balance as its net liabilities grow?"},"whatWouldChangeView":{"attribution":"Change condition not recorded","text":""},"editorialComparisons":[],"live":{"title":"Matthew Higgins and Thomas Klitgaard argue in Liberty Street Economics that the U.S. income surplus is shrinking","summary":"Matthew Higgins and Thomas Klitgaard published this analysis on May 18, 2026, in Liberty Street Economics. They trace the shrinking U.S. income surplus to higher interest rates after the pandemic and continued sales of U.S. assets to foreign investors. Although U.S. holdings abroad are smaller than foreign holdings in the United States, income from foreign direct investment and portfolio equity has helped offset a persistent deficit on interest-bearing assets. The authors say higher interest rates increased net interest payments, bringing the income balance close to zero in 2024 and 2025. They argue that the need to sell U.S. assets to finance trade deficits means payments flowing abroad are likely to mount. A larger gap between U.S. assets and liabilities in interest-bearing assets also makes the income balance more sensitive to rate changes: the authors estimate that a one percentage point rate rise would subtract $150 billion from it. They note that one percentage point fall would bring a similar improvement. The authors do not resolve whether the U.S. advantage in foreign direct investment returns reflects a statistical illusion or corporate tax strategies. How will changes in interest rates affect the U.S. income balance as its net liabilities grow?","question":"How will changes in interest rates affect the U.S. income balance as its net liabilities grow?","claims":[{"text":"Higgins and Klitgaard attribute the fading U.S. net investment income surplus to higher interest rates after the pandemic and continued net sales of U.S. assets to foreign investors.","excerpt":"We show that the fading of the net investment income surplus stems from the upward shift in interest rates in the aftermath of the pandemic along with the continued net sales of U.S. assets to foreign investors.","support":"source-stated"},{"text":"The authors say net interest payments increased after the pandemic, with the interest balance reaching a deficit of $450 billion last year.","excerpt":"Net interest payments have swelled since the pandemic, with the interest balance reaching -$450 billion last year.","support":"source-stated"},{"text":"The authors argue that payments to foreign investors are a servicing burden and are likely to mount as the United States sells assets to finance trade deficits.","excerpt":"Given the need to sell U.S. assets to finance ongoing trade deficits, this servicing burden seems likely to mount.","support":"source-stated"},{"text":"The authors estimate that a one percentage point rise in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance.","excerpt":"At present, with the asset-liability gap at -$15 trillion, a 1 percentage point increase in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance.","support":"source-stated"},{"text":"Higgins and Klitgaard leave unresolved whether the U.S. advantage in foreign direct investment profitability reflects a statistical illusion or corporate tax strategies.","excerpt":"some observers arguing that it represents a statistical illusion, perhaps from corporate tax arbitrage strategies. This debate has been ongoing for more than three decades—see our earlier work—and we do not propose to settle it here.","support":"source-stated"}],"limitations":["Text as retrieved on October 30, 2026; originally published May 18, 2026.","Higgins and Klitgaard do not resolve the debate over whether the U.S. advantage in foreign direct investment profitability reflects a statistical illusion or corporate tax arbitrage strategies."],"mediaId":null,"correctionReason":null,"id":"6fc3172fc15b915e7a9ac5cd9c0fa4c9b5de02733b5cb7a58bc20f6ffe0c727d","publicationId":"717425fb-93ad-c2ac-3cf3-df7092bcac2e","version":1,"sourceUrl":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","sourceTitle":"Honey, Who Shrunk the U.S. Income Surplus?","publisher":"Federal Reserve Bank of New York","publishedAt":"2026-05-18T11:00:00.000Z","originalPublished":{"value":"2026-05-18T11:00:00.000Z","precision":"instant","basis":"backfill:feed_published"},"firstObservedAt":"2026-10-30T19:56:16.390Z","createdAt":"2026-11-07T03:13:28.560Z","historical":true,"entityIds":[],"topicIds":["investment-booms-and-busts"],"media":[],"sourceMedia":{"status":"unchecked","sourceUrl":"https://libertystreeteconomics.newyorkfed.org/2026/05/honey-who-shrunk-the-u-s-income-surplus/","checkedAt":null,"items":[]},"editorialDecision":{"outcome":"accept","mediaId":null,"inputHash":"3541e406bbc4b942a7b1fc2736fb9abb400b50ad4825fcaacf9e928bf335debe","rubricVersion":"em-backfill-context/3","provider":"typesafe","model":"jev-1.13.0","reasonCodes":["bridge_admitted_by_model"],"confidence":0.97,"decidedAt":"2026-10-30T19:56:15.011Z"},"provenance":{"textHash":"2426620a13cd515ee86a0ec12ac6260e5e8ad85a73e7f98b11d01e1fbc0c2792","observationId":"1538feee2f4866445033c80a3c89ae69bbc8b0cf47135e88cb4bd39b051760be","retrievedAt":"2026-10-30T21:11:47.083Z","kind":"publisher-page","preparer":{"model":"openai/gpt-6-luna","runId":"feb8a91d-2d58-730c-d32c-ba1cabc46dca"},"reviewer":{"model":"anthropic/claude-opus-5.5","runId":"e6bb80e9-c44d-0f20-c1ec-b510cddca562"}},"audit":{"status":"uncertain","reviewedAt":"2026-11-07T03:09:11.163Z","model":"anthropic/claude-opus-5.5"}}}],"audits":[{"publicationId":"717425fb-93ad-c2ac-3cf3-df7092bcac2e","verdict":"uncertain","findings":[{"dimension":"attribution","status":"pass","explanation":"The reading correctly attributes the analysis to Matthew Higgins and Thomas Klitgaard in the Federal Reserve Bank of New York's Liberty Street Economics. It keeps their conclusions as the authors' arguments and estimates. The source is a single analytical post, not a listing.","excerpt":"Matthew Higgins and Thomas Klitgaard"},{"dimension":"summary","status":"uncertain","explanation":"The reading is faithful, but its central terms are left unexplained and no definitions are supplied. It never says that the 'income surplus' means U.S. receipts of profits, dividends and interest from abroad exceeding payments to foreign investors. It also does not explain 'foreign direct investment', 'portfolio equity' or 'interest-bearing assets'. A non-specialist may not follow the mechanism. Smallest repair: add a plain-language gloss of the income surplus, and add term-library entries for the other terms. The closing question also repeats verbatim inside the summary.","excerpt":"Yet U.S. investment income receipts—in profits, dividends, and interest—comfortably exceeded income payments until recently."},{"dimension":"date","status":"pass","explanation":"May 18, 2026 matches the source dateline and the UTC day of originalPublished. The page is a publisher page, not an archive copy. The authors' expectation that the servicing burden will mount is presented as their forecast. Related-story links on the page are not used.","excerpt":"May 18, 2026"},{"dimension":"support","status":"pass","explanation":"Each claim is supported by the source text: the causes of the fading surplus, the -$450 billion interest balance, the near-zero balance in 2024 and 2025, the servicing-burden forecast, the $150 billion rate sensitivity with a symmetric fall, and the unresolved debate over FDI returns. The question follows from the conclusion and is not a leading claim. Grounding in the source does not independently verify the figures.","excerpt":"This increase in interest payments accounts for the shrinking of the U.S. income surplus."},{"dimension":"media","status":"pass","explanation":"No media is selected and no verified media candidates were supplied, so there is no misidentified or irrelevant media.","excerpt":null}],"createdAt":"2026-11-07T03:09:11.163Z","model":"anthropic/claude-opus-5.5"}],"correctionUrl":"https://escapemeridian.com/corrections/"}