U.S. Net International Investment Position Hits $26 Trillion Deficit, Amplifying Market Shocks

An often overlooked risk to financial markets has recently become more prominent, transitioning from a subtle undercurrent to a more vocal and noticeable presence. This shift has caught the attention of market participants, who are now grappling with the implications of this emerging threat. The risk, which had long been lurking beneath the surface, is now "shouting, not whispering," as market dynamics and external factors converge to amplify its impact.

The nature of this risk is multifaceted, encompassing a range of economic, political, and social factors that have the potential to disrupt market stability. One key aspect of this risk is the increasing interconnectedness of global financial systems, which can amplify the effects of localized shocks. For instance, geopolitical tensions in one region can have ripple effects across multiple markets, leading to volatility and uncertainty. Additionally, the rapid pace of technological change is introducing new risks, such as cybersecurity threats and the potential for market manipulation through advanced algorithms.

Another significant factor contributing to this risk is the evolving regulatory landscape. As governments and regulatory bodies implement new policies and guidelines, financial institutions are faced with the challenge of adapting to these changes while maintaining profitability and compliance. The complexity of these regulations can create uncertainty, making it difficult for market participants to anticipate and respond to potential disruptions.

Furthermore, the risk is exacerbated by the growing influence of non-traditional market participants, such as hedge funds and high-frequency traders. These entities often employ sophisticated strategies that can introduce new forms of risk, including liquidity risk and market fragmentation. The increased participation of these players can lead to rapid price movements and heightened volatility, making it more challenging for traditional investors to navigate the market.

The financial markets are also grappling with the long-term effects of the global pandemic, which has had a profound impact on economic activity and consumer behavior. The pandemic has accelerated trends such as digital transformation and remote work, which have implications for various sectors, including technology, real estate, and retail. As the world continues to adapt to these changes, financial markets will need to adjust to new realities and potential risks.

In response to these challenges, market participants are taking steps to mitigate the risk. Financial institutions are investing in advanced risk management tools and technologies to better monitor and manage potential threats. Additionally, there is a growing emphasis on collaboration and information sharing among market participants, as well as with regulatory bodies, to enhance transparency and resilience.

The evolving risk landscape underscores the importance of vigilance and adaptability in financial markets. As the risk continues to "shout, not whisper," market participants must remain proactive in identifying and addressing potential threats. By doing so, they can help ensure the stability and integrity of the financial system, even in the face of uncertainty and change.

While much attention has been focused on the U.S. current account deficit, or the imbalance between imports and exports, there’s another metric that’s poised to amplify market shocks. That’s the net international investment position, according to Kevin Ford, FX and macro strategist at Convera, who likens it to America’s financial scorecard with the rest of the world. It measures how much the U.S. owns abroad versus how much the world owns in the U.S., he said in a note last week, describing it as America’s financial scorecard with the rest of the world. And by that score, the U.S. is in the red by about $26 trillion, or nearly 80% of GDP. “That means foreign investors hold way more American assets than Americans hold abroad,” Ford added. “It’s a setup that works fine when confidence is high, but in shaky times like 2025, it can become a pressure cooker.”

Indeed, times have been shaky. The U.S. Dollar Index is down 10% so far this year as the shock of Trump’s “Liberation Day” tariffs continues to reverberate, creating doubts about U.S. assets once deemed reliable safe havens. In fact, the dollar’s year-to-date plunge is the worst since the U.S. transitioned to a free-floating exchange rate in 1973, effectively ending the post-World War II system of fixed rates under the Bretton Woods agreement. Meanwhile, legislation that would add trillions of dollars to fiscal deficits is advancing in Congress, stirring more anxiety among foreign investors, especially those who hold U.S. debt. Put it all together, and this year has been a textbook example of how a negative NIIP profile can magnify currency turmoil, Ford warned. “And because so much of the capital propping up the U.S. financial system comes from abroad, even small shifts in sentiment can lead to big outflows,” he added. “That’s a lot of dollars being sold, and fewer being bought, and voilà, the greenback stumbles.”

Circling back to the financial scorecard analogy, Ford explained that the problem with focusing on the current account deficit is that it only shows the flow of transactions, i.e. imports versus exports. By contrast, the NIIP shows the overall pile of debts—and ignoring that would be like judging a person’s spending habits without checking their credit card balance, he said, making trust “your most important asset.” “Yes, trade deficits, interest rates, and Fed signals all play a role, but the NIIP tells you just how exposed the U.S. is when things go sideways,” Ford concluded. “It’s the quiet structural risk lurking under the surface, ready to amplify shocks. And in a year like this, it’s been shouting, not whispering.”

Waning confidence in the dollar has spurred investors and central banks around the world to load up on gold, which has soared in price in recent years and particularly this year, surging 21% in 2025. Trump’s unrelenting pressure on Federal Reserve Chairman Jerome Powell to cut interest rates has also weakened the dollar lately. While many on Wall Street see even more downside potential ahead for the dollar, the AI boom that’s still drawing billions in global investment flows to the U.S. .