Hardie, Iain, and Sylvia Maxfield. "Atlas Constrained: The US External Balance Sheet and International Monetary Power". Review of International Political Economy, Vol.23, No.4 (2016): 583-613.

Hardie, Iain, and Sylvia Maxfield. "Atlas Constrained: The US External Balance Sheet and International Monetary Power". Review of International Political Economy, Vol.23, No.4 (2016): 583-613.

• In the traditional conceptions of monetary power developed by Benjamin Cohen, the current account is the area in which monetary power is used, as states use their power to delay or shift the costs of adjustment resulting from trade imbalances (583-584). The focus on current account imbalances is no longer sufficient to describe monetary power, as financial globalization has led private actors to own substantial foreign assets and liabilities that constitute an 'external balance sheet', which impacts US monetary power (585).
• The scale of American-held international assets and liabilities has increased massively since the 1990s, with most assets and liabilities being held by private actors. Many years, the change in the valuation of these assets and liabilities on the external balance sheet is greater than a change in official government borrowing. As such, the external balance sheet has a major impact on the size and impact of the US current account deficit (586-587).
• The increased importance of the US external balance sheet in determining current account balances represents a weakening of American monetary power, as the private actors who own the majority of these assets and liabilities will increase the difficulty of delaying the costs of adjustment and of deflecting the costs of adjustment (588).
• American economic growth financed through increased indebtedness increases the rate of growth of the American economy relative to the global economy, meaning that the value of foreign-held liabilities in the USA grows fasted than American-held foreign assets, meaning that there is a net wealth transfer out of the USA and the current account deficit increases. This is increasingly out of the control of the US government because it is the result of decisions by private actors on financial markets (588-589).
• If markets panic as a result of a balance of payments crisis, then the ability of the USA to delay and defer the costs of adjustment are greatly lessened and it will bear many of these costs in the form of increased interest rates on private borrowing. In this way, the external balance sheet reduces American monetary autonomy and power (589).
• The level of American indebtedness, and thus the limits on its international borrowing and its ability to delay the costs of adjustment, are determined primarily by the activities of private actors on the external balance sheet. This means that financial markets can impose the costs of adjustment on the USA regardless of US monetary power or global willingness to fund government debt (597).
• Factoring in the external balance sheets only reduces US monetary power if this increases the vulnerability of the USA more than it does other countries. Although some other countries are also exposed, namely Netherlands and Switzerland, the USA is both extremely sensitive and vulnerability to valuation changes in its external balance sheet, with the effects of valuation changes being widespread due to the internationalization of finance for US mortgages and mass participation in mutual funds and pension schemes (599-600).
• The exposure of the US external balance sheet to international financial markets undercuts the ability of the USA to provide conditional liquidity to select institutions and engage in currency manipulation, traditionally the two state tactics to defer and deflect the costs of adjustment (601).
• Financial markets, through exerting demand for US dollar assets as safe investments during times of crisis, now exert significant power on the value of the US dollar, independent of government policy. The failure of Federal Reserve policy since 2007 to significantly devalue the dollar through low interest rates and quantitative easing demonstrates the degree to which the value of US dollar is primarily determined by international financial markets. This means that the US government has only a limited capacity to devalue its currency during a contestation over the distribution of the costs of adjustment (601-602).
• The increased interconnectedness of American companies and financial bodies within international finance makes it much more difficult to selectively distribute liquidity during a crisis. Even distinguishing between American and foreign companies becomes difficult, as demonstrated in the 2008 crisis. Because it cannot discriminate in favor of American companies in providing liquidity, the Federal Reserve is instead forced to address financial crises by becoming a global lender of last resort and providing liquidity to firms of all nationalities (602-605).
• An inability to distinguish between foreign and American companies and financial institutions means that the US government cannot effectively pressure other governments into doing their part during a financial crisis, as the US response will often accidentally remove the burden from these governments (603).
• The inability to effectively discriminate in the provision of liquidity also reduces the ability of the US government to wield coercive power. This was demonstrated in the 2008 financial crisis, when the US bailout of AIG benefitted Barclays, undermining the US position in dispute with the UK over who would bear the costs of that bailout, and UBS, which had been under pressure for assisting tax evaders (603).
• The US has served in the role of global banker, borrowing short-term by issuing Treasury bonds and providing long-term credit to the rest of the world,  earning income from the difference between the interest rate on its debts and the interest rates charged on loans it has made. The income made from this lending, collectively measured as the USA's net international investment position, has traditionally reduced the US current account deficit by reducing the need to borrow foreign capital to afford imports (585-586).
• The composition of American-held international assets and liabilities have massively changed between the 1960s and the 1990s. Rather than many assets being loans through the Marshall Plan, most current US international assets are privately-held stocks, bonds, financial derivatives, and direct investments (586-587). 
• The external balance sheet has also grown substantially since the 1990s, and has tripled in size between 2000 and 2014 alone. Changes in the valuation of American-held international assets and foreign-held American liabilities, as a result of change in value rather than sales, now exceed the US current account deficit (591).
• The US external balance sheet exposed the USA to multiple different ways in which valuation can change and impact the current account balance:
• American-held international assets are overwhelmingly dominated in currencies other than US dollars, whereas most of its international liabilities are in US dollars. Thus, when the US dollar appreciates in value, the net international investment position declines and US current account deficits worsen, whereas there is a net wealth transfer to the USA and the current account deficit is reduced when the US dollar depreciates in value (592-593).
• American-held international assets are usually in the form of riskier long-term investments like equity and direct investment, while international liabilities are mainly in the form of short-term bonds. This means that during periods of global financial stability and low risk assessments, as prior to the 2008 financial crisis, the US net international investment position improves, while the the net international investment position and the current account balance worsen when secure assets like US bonds outperform riskier investments. In this sense, the USA acts as a global insurer, making money during good times and paying heavily during crises (593).
• The US external balance sheet contains a large amount of equity and direct investment as both assets and liabilities, so another factor impacting the current account balance is the relative performance of US equity and investment markets versus their global counterparts. If US markets outperform the global average, then there is a net wealth outflow from the USA and the current account deficit grows, whereas the opposite is true if global financial markets outperform US markets (593).
• In the period prior to the 2008 financial crisis, the USA experienced positive net inflows of wealth from its external balance sheet, as its net international investment position improved and reduced overall indebtedness. The 2008 financial crisis changed everything, as the US dollar was relatively strong, safe assets outperformed riskier investments, and US equity markets outperformed the global average, resulting in a massive increase in US indebtedness and a worsening of the net international investment position (593-594).
• 2008 marks the most significant change in the US net international investment position, with US indebtedness doubling that year. The security of US bonds against the background of the global financial crisis was responsible for around 70% of the wealth transfer and the appreciated value of the US dollar was responsible for most of the other 30% (594-595).
• The US net international investment position suffered another blow in 2011, primarily as a result of the Euro Crisis, which saw massive losses of American investment and equity in Europe during a period of relative stability and growth in the USA, resulting in US markets majorly outperforming American investments abroad. The loss in 2011 was particularly large because Americans held major investments in Europe (595). 
• Another deterioration of the US net international investment position occurred in 2013 due to the strong performance of the American stock market, which experienced record gains. Global growth was also strong during this period, but growth in US financial markets was so exceptional as to transfer $800 billion out of the country to foreign investors (595-596).
• The continuation of the Euro Crisis and instability in Eastern Europe during the Ukrainian Crisis in 2014 further deteriorated the US net international investment position, as US equity markets outperformed their foreign counterparts. Instability elsewhere led American and foreign investors to prefer US financial markets, reducing the net inflows from American-held assets in other countries and increasing wealth outflows via more foreign-held American liabilities (596-597).
• "Considering all three sources of valuation change and the performance of the US external balance sheet, the overall picture is that US experiences valuation gains when US financial markets and the US dollar underperform and loses when they outperform. There is a clear irony here: the US dollar’s key currency status depends in large measure on the attractiveness of US financial markets, but this US gain is linked to those US markets underperforming international counterparts" (594).
• The valuation changes in the US external balance sheet have real effects on the US economy, as positive changes in the US net international investment position mean more money in the American economy and thus greater consumption and investment and higher economic growth. Similarly, a deterioration of the US net international investment position takes money out of the US economy and lowers growth (598).
• The USA is partially shielded from the negative effects of negative changes in its net international investment position because these tend to occur during periods when foreigners invest more heavily in the USA, thus resulting in capital flow into the US economy. As the external balance sheet grows relative to the US current account, the negative effects of deterioration in net international investment position will become more important than any benefits from increased capital inflows (598-599).
• The most serious economic risks facing the USA are not a sudden loss of faith in American credibility, but instead general global instability or severe financial crisis in a region in which the USA has significant investments (606).
• Inclusion of the US external balance sheet into international economic analyses demands that more attention be paid to Europe, the USA's primary counterpart in investment (606).