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Congressional Research Service 7-5700 www.crs.gov RL32462 Summary Foreign capital inflows play an important role in the U.S. economy by bridging the gap between domestic supplies of and demand for capital. Such inflows peaked in 2007 in nominal terms. In 2008 and 2009, foreign capital inflows dropped sharply as the financial crisis and global economic downturn unfolded. At times, foreign investors have looked to U.S. Treasury securities as a "safe haven" investment, while they sharply reduced their net purchases of corporate stocks and bonds. Since the financial crisis, foreign private investments generally have outpaced foreign official inflows, but foreign private purchases of U.S. corporate stocks and bonds generally have not rebounded to the level experienced prior to the financial crisis. Foreign investors now hold more than 50% of the publicly held and traded U.S. Treasury securities. The large foreign accumulation of U.S. securities has spurred some observers to argue that this large foreign presence in U.S. financial markets increases the risk of a financial crisis, whether as a result of the uncoordinated actions of market participants or by a coordinated withdrawal from U.S. financial markets by foreign investors for economic or political reasons. Congress likely would find itself embroiled in any such financial crisis through its direct role in conducting fiscal policy and in its indirect role in the conduct of monetary policy through its supervisory responsibility over the Federal Reserve. Such a coordinated withdrawal seems highly unlikely, particularly since the vast majority of the investors are private entities that presumably would find it difficult to coordinate a withdrawal. The financial crisis and economic downturn, however, reduced the value of the assets foreign investors acquired, which may make them more hesitant in the future to invest in certain types of securities. As a result of the financial crisis, foreign investors curtailed their purchases of corporate securities, a phenomenon that was not unique to the United States. In a sense, the slowdown in the U.S. economy and the rise in the personal rate of saving eased somewhat the need for foreign investment. The importance of capital inflows changes in relation to the overall saving-investment balance in the economy. This report analyzes the extent of foreign portfolio investment in the U.S. economy and assesses the economic conditions that are attracting such investment and the impact such investments are having on the economy. Over the course of the 2008-2009 recession, foreign investors often favored dollar-denominated investments due to a number of factors, including the evaluation that such investments are a "safe haven" investment during times of uncertainty; comparatively favorable returns on investments, a surplus of saving in other areas of the world, the well-developed U.S. financial system, and the overall stability and relative rate of growth of the U.S. economy. Capital inflows also allow the United States to finance its trade deficit because foreigners are willing to lend to the United States in the form of exchanging the sale of goods, represented by U.S. imports, for such U.S. assets as U.S. businesses and real estate, stocks, bonds, and U.S. Treasury securities. Despite improvements in capital mobility, foreign capital inflows do not fully replace or compensate for a lack of domestic sources of capital. Economic analysis shows that a nation's rate of capital formation, or domestic investment, seems to be linked primarily to its domestic rate of saving. This report relies on a comprehensive set of data on capital flows represented by purchases and sales of U.S. government securities and U.S. and foreign corporate stocks and bonds into and out of the United States; the data are reported by the Treasury Department on a monthly basis. Contents Introduction 1 Capital Flows in the Economy 3 Capital Flows and the Dollar 8 Purchases and Sales of U.S. Securities 11 Purchases and Sales of U.S. Securities by Foreign Investors 15 Corporate Stocks 17 Corporate Bonds 18 Major Foreign Holdings of U.S. Long-Term Securities 19 Economic Implications 23 Figures Figure 1. Foreign Official and Private Capital Inflows to the United States, 1996-2014 3 Figure 2. Total Net Saving and Investment for All Countries, 2006-2014 6 Figure 3. Foreign Ownership Share of Publicly Held Treasury Securities, 2001-2015 11 Figure 4. Net Foreign Purchases of U.S. Domestic Securities, 2000-2014 12 Figure 5. Foreign Official and Private Purchases of U.S. Treasury Securities, 1997-2014 15 Tables Table 1. Capital Inflows of the United States, 1996-2014 2 Table 2. Flow of Funds of the U.S. Economy, 1996-2014 4 Table 3. Saving and Investment in Selected Countries and Areas; 2001-2008, 2009-2013, and 2014 6 Table 4. Foreign Exchange Market Turnover 9 Table 5. Transactions in Long-Term U.S. Securities, 2014 13 Table 6. Foreign Transactions in U.S. Domestic Securities, 2013-2015 14 Table 7. Net Purchases of U.S. Domestic Securities by Foreigners 16 Table 8. Net Foreign Purchases of Publicly Traded U.S. Treasury Securities 17 Table 9. Net Foreign Purchases of U.S. Corporate Stocks 18 Table 10. Net Foreign Purchases of U.S. Corporate Bonds 19 Table 11. Major Foreign Holdings, or Cumulative Amounts, of Long-Term U.S. Treasury Securities 20 Table 12. Market Value of Foreign Holdings of U.S. Long-Term Securities, by Type of Security 22 Contacts Author Contact Information 26 Introduction Foreign capital inflows play an important role in the U.S. economy by bridging the gap between domestic supplies of and demand for capital. The importance of these flows was underscored by the financial crisis of 2008-2009, when international capital markets essentially shut down for a period of time. International capital flows and international capital markets also generally give the owners of capital the ability to reduce their risk by diversifying their investments. Oversight of these markets has changed as a result of the financial crisis. Foreign investors currently own more than 50% of the publicly held and traded U.S. Treasury securities and hold large amounts of U.S. corporate stocks and bonds. Capital inflows help keep U.S. interest rates below the level they would reach without them and have allowed the nation to spend beyond its current output, including financing its trade deficit. Some observers have expressed concerns about the extent of these foreign holdings, because they argue that this exposure increases the overall risks to the economy should foreign investors decide to withdraw from the U.S. financial markets for political or economic reasons. At the same time, the funding requirements of the U.S. economy often tempers the criticism of some foreign investors, especially if capital flows should shrink and U.S. funding requirements increase. Inflows of capital into the U.S. economy are not new, although they grew sporadically over the last decade, as indicated in Table 1. By 2007, before the global economic recession, total foreign capital inflows to the United States reached over $2 trillion. As Figure 1 shows, these capital inflows are comprised of official inflows, primarily foreign governments' purchases of U.S. Treasury securities, and private inflows comprised of portfolio investment, which includes foreigners' purchases of U.S. Treasury and corporate securities, and financial liabilities, and direct investment in U.S. businesses and real estate. In 2008, total foreign capital inflows totaled about $454 billion, or down by three-fourths from 2007. In 2009, such inflows fell to $318, reflecting the sharp slowdown in the rate of economic growth and reduced demands for foreign capital in the economy. Private capital inflows, which generally comprise more than three-fourths of the total capital inflows, fell to a $31 billion, down from the $1.0 trillion they accounted for in 2007 as foreign investors pared back their holdings of corporate securities. Total capital inflows rebounded in 2013 and 2014, to reach around $1 trillion annually. In 2008 and 2009, official inflows outpaced the net inflows by private investors, reflecting both the collapse in private investment and the actions by governments to stabilize capital markets. Other private capital inflows are associated with U.S. liabilities to foreigners reported by U.S. banks and such non-bank financial firms as investment and securities firms. These accounts registered net outflows, or negative amounts, in 2008 for banks, mostly as a result of a large reduction in foreign banks' deposits at banks in the United States, and negative amounts in 2007-2009 for non-bank financial firms. Since 2009, private capital inflows have outpaced official inflows as a result of a combination of foreign direct investment in U.S. business and investment in U.S. Treasury securities and corporate stocks and bonds. The value of foreign direct investment in 2014 dropped below that recorded for 2013, likely reflecting a large stock buy-back between Verizon and the French firm Vodafone. In general, capital flows are highly liquid, can respond abruptly to changes in economic and financial conditions, and exercise a primary influence on exchange rates and through those on global flows of goods and services. Economists generally attribute the rise and fall in foreign investment to a number of factors, including a "safe haven" effect during times of uncertainty; comparatively favorable returns on investments relative to risk, a surplus of saving in other areas of the world, the well-developed U.S. financial system, and the overall stability of the U.S. economy. Net capital inflows (inflows net of outflows) bridge the gap in the United States between the amount of credit demanded and the domestic supply of funds, likely help keep U.S. interest rates below the level they likely would reach without the foreign capital. These capital inflows also allow the United States to spend beyond its means, including financing its trade deficit, because foreigners are willing to lend to the United States in the form of exchanging goods, represented by U.S. imports, for such U.S. assets as stocks, bonds, and U.S. Treasury securities. Table 1. Capital Inflows of the United States, 1996-2014 (in billions of dollars) Total Official assets Private assets Total Direct investment Treasury securities Corporate securities U.S. currency Other 1996 $21.5 $10.5 $11.0 $0.9 $0.0 $4.5 $0.0 $5.6 1997 704.5 19.0 685.4 105.6 130.4 161.4 22.4 265.5 1998 420.8 -19.9 440.7 179.0 28.6 156.3 13.8 62.9 1999 742.2 43.5 698.7 289.4 -44.5 298.8 24.4 130.5 2000 1,038.2 42.8 995.5 321.3 -70.0 459.9 -3.4 287.6 2001 782.9 28.1 754.8 167.0 -14.4 393.9 23.8 184.5 2002 795.2 115.9 679.2 84.4 100.4 283.3 18.9 192.3 2003 858.3 278.1 580.2 63.8 91.5 220.7 10.6 193.7 2004 1,533.2 397.8 1,135.4 146.0 93.6 381.5 13.3 501.1 2005 1,247.3 259.3 988.1 112.6 132.3 450.4 8.4 284.3 2006 2,116.3 487.9 933.1 294.3 -58.2 720.7 2.2 695.3 2007 2,183.5 481.0 1,015.6 340.1 66.8 640.0 -10.7 686.9 2008 454.1 554.6 301.8 332.7 162.9 -39.8 29.2 -402.4 2009 318.4 480.2 30.9 153.8 -15.5 -17.5 12.6 -192.8 2010 1,386.3 397.2 682.5 259.3 298.3 103.9 28.3 306.6 2011 977.1 243.3 325.7 257.4 185.5 -57.8 55.0 408.0 2012 601.0 397.0 567.7 217.8 156.0 154.6 57.1 -362.8 2013 1,042.0 309.5 468.6 287.2 178.2 120.3 NA 252.8 2014 977.4 100.4 724.0 131.8 187.1 384.8 NA 140.6 Source: Bureau of Economic Analysis, Survey of Current Business, various issues. Figure 1. Foreign Official and Private Capital Inflows to the United States, 1996-2014 / Source: Department of Commerce. Capital Flows in the Economy Table 2 shows the net flow of funds in the U.S. economy. The flow of funds accounts measure financial flows across sectors of the economy, tracking funds as they move from those sectors that supply the sources of capital through intermediaries to sectors that use the capital to acquire physical and financial assets. The net flows show the overall financial position by sector, whether that sector is a net supplier or a net user of financial capital in the economy. Since the demand for funds in the economy as a whole must equal the supply of funds, a deficit in one sector must be offset by a surplus in another sector. Generally, the household sector, or individuals, provides funds to the economy, because individuals save part of their income, while the business sector uses those funds to invest in plant and equipment that, in turn, serve as the building blocks for the production of additional goods and services. The Government sector (the combination of federal, state, and local governments) can be either a net supplier of funds or a net user depending on whether the sector is running a surplus or a deficit, respectively. The interplay within the economy between saving and investment, or the supply and uses of funds, tends to affect domestic interest rates, which move to equate the demand and supply of funds. Shifts in the interest rate also tend to attract capital from abroad, denoted by the rest of the world (ROW) in Table 2. As Table 2 indicates, from 1996 through 1999 and from 2007 through 2014, the household sector ran a net surplus, or provided net savings to the economy. The business sector also provided a net surplus of funds to the economy at various times, or businesses earned more in profits than they invested. The government sector, primarily the federal government, experienced net deficits, which decreased until 2000, when the federal government and state and local governments experienced financial surpluses. Capital inflows from the rest of the world rose and fell during this period, depending on the combination of household saving, business sector saving and investment, and the extent of the deficit or surplus in the government sector. Table 2. Flow of Funds of the U.S. Economy, 1996-2014 (in billions of dollars) Year Households Businesses Government ROW Total State and Local Federal 1996 $283.2 $10.7 -$232.7 -$29.8 -$202.9 $736.6 1997 232.1 -64.4 -95.2 -8.2 -87.0 617.6 1998 262.4 -98.1 5.5 13.9 -8.3 807.4 1999 16.2 -81.5 34.8 -43.6 78.4 713.8 2000 -263.2 -100.4 146.4 -0.7 147.1 535.4 2001 47.9 28.2 -101.7 -89.2 -12.5 531.1 2002 -62.0 -0.8 -535.3 -193.4 -342.0 500.4 2003 109.7 18.5 -728.4 -197.5 -530.9 413.5 2004 235.3 97.2 -632.2 -158.1 -474.1 477.7 2005 -296.1 -74.9 -400.2 22.6 -422.8 698.5 2006 -366.4 -202.9 -311.8 -1.4 -310.4 529.8 2007 243.2 -265.2 -450.3 -59.7 -390.6 151.5 2008 1,081.5 -984.8 -1,121.0 -322.9 -798.1 765.2 2009 598.8 593.3 -1,734.2 -436.0 -1,298.2 28.0 2010 898.9 174.7 -1,722.3 -307.4 -1,414.9 268.2 201I 1,346.6 -415.9 -1,698.0 -345.6 -1,352.4 416.7 2012 1,094.5 -506.0 -1,387.9 -270.7 -1,117.2 446.6 2013 833.7 13.2 -935.1 -272.8 -662.3 371.8 2014 844.3 -309.1 -834.7 -235.1 -599.6 166.2 Source: Board of Governors of the Federal Reserve System, Financial Accounts of the United States, Flow of Funds Balance Sheets, and Integrated Macroeconomic Accounts, various issues. Starting in 2000, the household sector began dissaving, as individuals spent more than they earned. Part of this dissaving was offset by the government sector, which experienced a surplus in 2000. As a result of the large household dissaving, however, the economy as a whole experienced a gap between domestic saving and investment that was filled with capital inflows. Those inflows can vary in size in nominal terms as households experience periods of saving and dissaving and government sector surpluses turned to deficits. On a balance of payments basis, capital inflows in 2009 were $28 billion, a sharp drop from the $765 billion recorded in 2008. This drop in capital inflows reflected a sharp reversal in the behavior of households and firms from dissaving to saving, and an increase in the deficits experienced by federal and state and local governments as the effects of the economic slowdown became more pronounced. Households turned from a dissaving of $366 billion in 2006 to a net saving of $1.1 trillion in 2008 and $1.3 trillion in 2011, reflecting tight credit conditions, a sharp drop in household wealth, and concerns among households over the state of the economy. The Federal Reserve reported that in 2008, households experienced a drop in their net worth from $65 trillion to $55 trillion, or about 15%. By the end of the first quarter of 2015, household net worth had grown by about $30 trillion from the end of 2009 to reach $85 trillion. Foreign capital inflows augment domestic U.S. sources of capital, which, in turn, keep U.S. interest rates lower than they would be without the foreign capital. Indeed economists generally argue that it is this interplay between the demand for and the supply of credit in the economy that drives the broad inflows and outflows of capital. As U.S. demands for capital outstrip domestic sources of funds, domestic interest rates rise relative to those abroad, which tends to draw capital away from other countries to the United States. During periods of uncertainty, foreign investors often turn to U.S. Treasury securities as a "safe haven" investment, as was the case at times in 2008 and 2009 during the global financial crisis and 2010 and 2011 as a result of the European debt crisis. The United States also has benefitted from a surplus of saving over investment in many areas of the world that has provided a supply of funds and accommodated the overall shortfall of saving in the country, as indicated in Figure 2. This surplus of saving has been available to the United States, because foreigners have remained willing to loan that saving to the United States in the form of acquiring U.S. assets, which have accommodated the growing current account deficits. Over the past half-decade, the United States experienced an increase in its overall rate of saving and in the rate of domestic investment expressed as a share of national gross domestic product (GDP), compared with the period prior to the financial crisis, as indicated in Table 3. The increase in saving relative to investment has lessened the requirement for capital inflows, especially in 2013 and 2014. Figure 2. Total Net Saving and Investment for All Countries, 2006-2014 Net Saving and Investment as a percent of GDP / Source: International Monetary Fund. Table 3. Saving and Investment in Selected Countries and Areas; 2001-2008, 2009-2013, and 2014 (percentage of Gross Domestic Product) Area/Country Average, 2001-2008 Average, 2009-2013 2014 Change World Saving 23.7% 24.7% 25.5% 0.8% Investment 23.7% 24.3% 24.9% 0.6% United States Saving 17.8 16.2 17.9 1.7 Investment 22.2 18.6 19.8 1.2 Other Advanced Economies Saving 21.7 20.3 21.1 0.8 Investment 22.6 20.4 20.7 0.3 Eurozone Saving 23.0 21.8 22.5 0.7 Investment 22.6 20.4 19.2 -1.2 Japan Saving 26.3 22.5 22.4 -0.1 Investment 22.8 20.3 21.8 1.5 Emerging Developing Economies Saving 29.7 32.7 32.3 -0.4 Investment 27.1 31.5 31.6 0.1 Developing Asia Saving 39.0 44.0 43.0 -1.0 Investment 35.5 42.2 41.6 -0.6 Middle East Saving 35.1 35.3 31.7 -3.6 Investment 25.8 27.4 25.4 -2.0 Source: World Economic Outlook, International Monetary Fund, April 2015, Table A-14. Note: The change indicated in the final column represents the change between the value of the respective line in 2014 and the average amount in the preceding five-year period. As Table 3 indicates, world saving and investment in 2014, compared with the 2009-2013 period, increased by 0.8% and 0.6% of GDP, respectively. The shift toward more saving relative to investment in 2014 compared with the average of 2009-2013 and the 2009-2013 period compared with the previous period reflects the far-reaching impact of the economic recession on the performance of economies world-wide. In some areas, economic activity has not fully recovered from the recession and saving by households has increased as a share of GDP. Similarly, in the United States both saving and investment increased in 2014 relative to the average of the previous five-year period. Although saving as a share of GDP increased more than investment, investment continued to account for a larger share of GDP than saving. Among other advanced economies saving and investment increased in 2014 compared with the previous five-year period. In the Eurozone area, continued concerns over the sovereign debt crisis and limited access to financing restrained business investment in 2014 below the average of the previous five-year period and relative to the period prior to the financial crisis. In Japan, saving fell as a share of GDP, perhaps reflecting the sharp rise in sales taxes in Japan, although business investment increased in 2014 relative to the average of the previous period. In the emerging developing economies of Asia, investment increased at a faster rate than saving in 2013 compared with the previous five-year period. In the Middle East, both saving and investment in 2014 fell relative to the previous five-year period, although saving still outstripped investment, continuing to supply an excess amount of saving to the rest of the world. Similarly, the developing economies of Asia (which includes China) continued to save more than they invested in 2014 compared with the previous period, which served as one source of excess saving to the rest of the world. Capital inflows allow the United States to finance its trade deficit, because foreigners are willing to lend to the United States in the form of exchanging the sale of goods, represented by U.S. imports, for such U.S. assets as businesses and real estate (referred to as direct investment), and stocks, bonds, and U.S. Treasury securities. In 2008 and 2009, the value of many of those assets dropped sharply, as the financial crisis eroded the value of financial assets and the economic downturn reduced profits and the value of on-going businesses. Capital inflows, however, put upward pressure on the dollar, which tends to push up the price of U.S. exports relative to imports and to reduce the overall level of exports. Furthermore, foreign investment in the U.S. economy drains off some of the income earned on the foreign-owned assets that otherwise would accrue to the U.S. economy as foreign investors repatriate their earnings. Some observers are particularly concerned about the long-term impact of the U.S. position as a net international investment debtor on the pattern of U.S. international income receipts and payments. In 2014, the United States received $823 billion in income receipts on its investments abroad and paid out $585 billion in income payments on foreign-owned assets in the United States for a net surplus of $238 billion in income receipts, up slightly from the net surplus in income receipts experienced in 2013. Considering the overall negative balance of the U.S. net investment position, it is surprising that the net surplus of income receipts continues to be positive. As the annual amount of foreign investment in the U.S. economy continues to exceed the amount of U.S. investment abroad, however, it seems inevitable that U.S. payments on foreign-owned assets will rise relative to U.S. receipts. A net outflow of income payments would act as a drag on the national economy as U.S. national income is reduced by the net amount of funds that are channeled abroad to foreign investors. Foreign capital inflows, while important, do not fully replace or compensate for a lack of domestic sources of capital. Capital mobility has increased sharply over the last twenty years, but economic analysis shows that a nation's rate of capital formation, or domestic investment, seems to be linked primarily to its domestic rate of saving. This phenomenon was first presented in a paper published in 1980 by Martin Feldstein and Charles Horioka. The Feldstein-Horioka paper maintained that despite the dramatic growth in capital flows between nations, international capital mobility remains somewhat limited so that a nation's rate of domestic investment is linked to its domestic rate of saving. Capital Flows and the Dollar Another aspect of capital mobility and capital inflows is the impact such capital flows have on the international exchange value of the dollar. Demand for U.S. assets, such as financial securities, translates into demand for the dollar, since U.S. securities are denominated in dollars. As demand for the dollar rises or falls according to overall demand for dollar-denominated assets, the value of the dollar changes. These exchange rate changes, in turn, have secondary effects on the prices of U.S. and foreign goods, which tend to alter the U.S. trade balance. At times, foreign governments have moved aggressively in international capital markets to acquire the dollar directly or to acquire Treasury securities in order to strengthen the value of the dollar against particular currencies. In other cases, some foreign countries have pegged the international exchange value of their currencies to the dollar. Also, the dollar is heavily traded in financial markets around the globe and, at times, plays the role of a global currency. Disruptions in this role have important implications for the United States and for the smooth functioning of the international financial system. This prominent role means that the exchange value of the dollar often acts as a mechanism for transmitting economic and political news and events across national borders. While such a role helps facilitate a broad range of international economic and financial activities, it also means that the dollar's exchange value can vary greatly on a daily or weekly basis as it is buffeted by international events. A triennial survey of the world's leading central banks conducted by the Bank for International Settlements in April 2013 indicates that the daily trading of foreign currencies through traditional foreign exchange markets totals $5.3 trillion, after adjusting for double-counting, up 36% from the $4.0 trillion reported in the previous survey conducted in 2010, as indicated in Table 4. In addition to the traditional foreign exchange market, the over-the-counter (OTC) foreign exchange derivatives market reported that daily turnover of interest rate and non-traditional foreign exchange derivatives contracts reached $2.0 trillion in April 2013. The combined amount of $7.3 trillion for daily foreign exchange trading in the traditional and OTC markets is more than three times the annual amount of U.S. exports of goods and services. The data also indicate that 87.0% of the global foreign exchange turnover in April 2013 was in U.S. dollars, slightly higher than the 84.9% share reported in a similar survey conducted in 2010. Table 4. Foreign Exchange Market Turnover (daily averages in April of the year indicated, in billions of U.S. dollars) 1998 2001 2004 2007 2010 2013 Foreign Exchange Market Turnover Instrument Spot transactions $568 $386 $631 $1,005 $1,490 $2,046 Outright forwards $128 $130 $209 $362 $475 $680 Foreign exchange swaps $734 $656 $954 $1,714 $1,765 $2,228 Reporting gaps $61 $28 $107 $129 NA NA Total "traditional" turnover $1,527 $1,239 $1,934 $3,324 $3,981 $5,345 Over the Counter Derivatives Market Turnover Foreign exchange instruments $97 $87 $140 291 NA Interest rate instruments $265 $489 $1,025 $1,686 $2,054 $2,343 Reporting gaps $13 $19 $55 $113 NA Total OTC turnover $375 $575 $1,220 $1,990 $2,083 $2,343 Total market turnover $1,865 $1,775 $3,100 $5,300 $6,064 $7,688 United States Foreign exchange turnover $351 $254 $499 $746 $864 $1,263 OTC derivatives turnover $91 $135 $318 $526 $614 $628 Total $442 $389 $817 $1,272 $1,478 $1,891 Source: Triennial Central Bank Survey: Foreign Exchange Turnover in April 2013: Preliminary Global Results, Bank for International Settlements, September 2013; The Foreign Exchange and Interest Rate Derivatives Markets: Turnover in the United States, April, 2013, Federal Reserve Bank of New York. In the U.S. foreign exchange market, the value of the dollar is followed closely by multinational firms, international banks, and investors who are attempting to offset some of the inherent risks involved with foreign exchange trading. On a daily basis, turnover in the U.S. foreign exchange market averages $1.3 trillion, an increase of 46% over similar transactions recorded in the 2010 survey. Similar transactions in the U.S. foreign exchange derivative markets averaged $628 billion per day in 2013, up slightly from the daily average of $614 billion reported in a similar survey conducted in 2010. Foreigners also buy and sell U.S. corporate bonds and stocks and U.S. Treasury securities. Foreigners now own about 58% of the total amount of outstanding U.S. Treasury securities that are publicly held and traded, as indicated in Figure 3. Figure 3. Foreign Ownership Share of Publicly Held Treasury Securities, 2001-2015 / Source: Treasury Bulletin, U.S. Department of the Treasury. Purchases and Sales of U.S. Securities A comprehensive set of data on capital flows, represented by purchases and sales of U.S. government securities and U.S. and foreign corporate stocks, bonds, into and out of the United States is published by the Treasury Department on a monthly basis. These data represent cross-border flows and positions between U.S. residents and foreign residents and include monthly data on transactions in long-term securities, monthly and quarterly data on long- and short-term securities reported by banks and securities brokers, annual position data on holdings of long-term and short-term securities, and comprehensive benchmark surveys. Cross-border transactions consist of only those transactions that involve both a U.S. seller and a foreign purchaser; they exclude transactions between strictly U.S. buyers and sellers and foreign buyers and sellers. The data also capture only those transactions that involve a defined panel of custodians (banks and other depository institutions, securities brokers and dealers, end-investors, security issuers, and nonfinancial institutions) above a certain threshold amount, specifically cross-border transactions of at least $50 million per month. The custodial basis of the transactions means that some attribution of data to specific countries may distort the holdings data, because some foreign owners entrust the safekeeping of their securities to such financial centers as Belgium, the Caribbean banking centers, Luxembourg, Switzerland, and the United Kingdom, which would inflate the holdings of these custodians, rather than be attributed to the actual foreign owner. The data in the following tables reflect annualized and quarterly monthly transactions in long-term securities. As the data in Table 5 show, foreign investors buy and sell large amounts of U.S. financial assets, although the annual accumulation, or net amount, though large in nominal dollar amounts, is generally small in relative terms when compared with the large amounts of assets that are traded. The net accumulation of these securities can vary sharply over time, as indicated in Figure 4. In 2014, foreigners purchased over $37 trillion dollars in U.S. securities, including transactions in foreign stocks and bonds, and sold $36.7 trillion dollars in assets, for a net increase in holdings of $275 billion, primarily as a result of net purchases of Treasury securities, other government agency bonds, corporate bonds, and foreign bonds. Figure 4. Net Foreign Purchases of U.S. Domestic Securities, 2000-2014 / Source: Treasury International Capital database. Marketable U.S. Treasury securities generally account for one of the largest shares of U.S. securities that are traded by foreign investors, whether measured in terms of the total amount of securities that are bought and sold, or in terms of the net annual accumulation of financial assets. From 1998 to 2007, however, the net accumulation of equities and corporate bonds by foreign investors surpassed the net accumulation of Treasury securities. After 2007, as the rate of growth of the U.S. economy began to slow and in the period following the financial crisis, the net accumulation of Treasury securities by foreign investors has surpassed the net accumulation of equities and corporate bonds. During the fourth quarter of 2014 and the first quarter of 2015, this t