Dissaving Nation: How Foreign Capital and Inflated Stocks Prop Up U.S. Wealth

Since the first quarter of 2023, U.S. households, firms, and the government have been consuming more capital than they are producing. Typically, this kind of net dissaving would result in a contraction of U.S. net wealth. However, contrary to expectations, the country’s net wealth continued to rise, reaching a record $153 trillion in the second quarter of 2024. This marks only the third period of national dissaving in the U.S. since 1947, with the other instances occurring during 2008-2011 and 2020.

Two Primary Factors Supporting U.S. Wealth Growth:

1. Foreign Investment: Despite the domestic dissaving, foreign entities that earn U.S. dollars through trade have continued to recycle their earnings into U.S. assets, thereby contributing to U.S. national savings. Foreign savings, primarily in the form of U.S. asset purchases, have helped cushion the impact of the declining domestic savings rate. However, foreign savings have decreased sharply since the first quarter of 2022.
2. Equity Valuations: The other significant contributor to U.S. net wealth has been the dramatic rise in U.S. equity prices. From 2022 onward, publicly listed U.S. companies have seen their share prices rise, which has artificially inflated U.S. wealth. This increase in equity values has outpaced actual earnings, meaning that much of the wealth increase has been driven by valuation effects rather than fundamentals.

Role of AI and Mega-Cap Tech Stocks: