Posted on 10/16/2007 8:48:34 PM PDT by DeaconBenjamin
Japan and China led a record withdrawal of foreign funds from the United States in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields.
The US requires $70bn a month in capital inflows to cover its current account deficit
Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. "These numbers are absolutely stunning," said Marc Ostwald, an economist at Insinger de Beaufort.
Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan ($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998 that foreigners have, on balance, sold Treasuries.
Mr Ostwald warned that US bond yields could start to rise again unless the outflows reverse quickly. "Woe betide US Treasuries if inflation does not remain benign," he said.
The release comes a day after the IMF warned that the dollar was still overvalued and likely to face "some depreciation in the medium term".
The dollar's short-lived rally over recent days stopped abruptly on the data, increasing pressure on US Treasury Secretary Hank Paulson to shore up Washington's "strong dollar" rhetoric at the G7 summit this week. advertisement
The Greenback has already fallen below parity against the Canadian Loonie for the first time since 1976 and has touched record lows against a global basket. It closed at $2.032 against the pound.
David Woo, an analyst at Barclays Capital, said Washington was happy to see the dollar slide. "They don't care so long as the fall is not disorderly. They see it as a way of correcting the deficit. " he said.
Mr Woo said a chunk of the August outflows may have come from foreigners borrowing in the US during the liquidity crunch to meet needs in euros. "We think it may be a one-off," he said.
The US requires $70bn a month in capital inflows to cover its current account deficit, but the key sources of finance are drying up one by one.
BNP Paribas said America has relied on "hot money" from abroad to cover 25pc to 30pc of the US short-term credit and commercial paper market over the last two years.
This flow is now in danger after the seizure in parts of the market over the summer and after the Federal Reserve's half point rate cut, which has shaved the US yield advantage over other countries.
Ian Stannard, a Paribas currency analyst, said the data was "extremely negative" for the dollar. "It exceeds the worst fears. It is not just foreigners who are selling US assets. Americans are turning their back as well," he said.
Central banks in Singapore, Korea, Taiwan, and Vietnam have all begun to cut purchases of US bonds, or signalled an intent to do so. In effect, they are giving up trying to hold down their currencies because the policy is starting to set off inflation.
The Treasury data would have been even worse if it had not been for $60bn of inflows from hedge funds based in Britain and the Caymans, which needed to cover US positions at the height of the credit crunch.
Maybe the country can just apply for a Visa card at 29 percent interest but zero for six months and transfer our debt over to that.
So what happened in 1998? Did we meet our demise?
Were we as dependent on borrowing from foreign nations? Now we require $70 billion a month from foreign borrowers.
Half a century of unbalanced budgets have to come due sometime...
And it’s a poor showing when a great country can’t keep control of the value of its currency.
(In the old days, when silver backed the dollar, this couldn’t have happened.)
Should be good news for U.S. manufacturing.
Good point. Those sells turned out to be bad, as rates were at a peak then, and prices at lows. The sellers lost, just as they will this time.
A “weak” currency is only bad, if treasuries soar in yields, because that means borrowing is more expensive for the govt. Nothing would suggest that now, as rates are sub 5%.
The real problem has been, that the USD was actually too strong. It made foreign goods very attractive here, and also brought illegal immigrants here in droves.
Unfortunately we have nothing to back our money … thanks to Nixon. The little we have left in Fort Knox is a pittance in the whole scheme of things.
Control the currency? Like China is doing now, or what Mexico and England were notably doing in 1993 and 1994.
Only a foolish country, or very weak one, controls their currency.
Also, as far as the USD goes, in your opinion, what is the
“proper” rate relative to a foreign basket of currencies?
Also, please tell me what negative ramifications you currently see in the dollar being “weak”?
Chicken Little. The US economy is strong. It is the others who are playing the money game. China will get their comeuppance by staying pegged to the dollar. Never bet against the USA unless the Democrats gain control.
lol. What manufacturing?
A fresh slide in the dollar would do great, great things for the Balance of Payments. Euro-weenies would be deserting their cesspool in droves to migrate to the colonies where everything is cheap.
Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments.
Yup. A buck'll get you about 49 pence. Pop over to London, and that £3 pint will be $6 to you.
Gotta keep the glass half full!
What is it with these threads?
If a weaker dollar is GOOD for US manufacturing, WELL THAT CAN'T BE!!! Because? Ferners are buyin up US manufakturin!
Well, now, if things are headed for a trainwreck...then why would ferners wanna buy up doomed manufacturing?
We have net selling of treasuries not seen in TEN YEARS! YIKES! And what doom occured then? None.
BUT BUT! Now we have to service the debt at levels unheard of when we were tied to silver and gold! Which would have to be true because to expand the economy this rapidly it couldn't be tied to that commodity?
What if....what if the world is not going to end next year?
bump for later
>Also, please tell me what negative ramifications you currently see in the dollar being “weak”?
Our nation gets sold for cheap.
Nonesense. We can always sell off some of our land. France may bargain for New Orleans and maybe Russia will want back a piece of Alaska.
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