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Preliminary View At Declining Total Capital Inflows And An Adverse Dollar Impact
We will provide a more in depth analysis of Treasury TIC data later, after today's monthly update, although a preliminary view provided by Jay Bryson at Wells Fargo has a conclusion that is not surprising at all: "there are not enough inflows to support the dollar." Yes, that pesky trade deficit continues wreaking havoc with the currency-stock market imbalance, and the sad conclusion is that as America becomes increasingly isolated from a trade standpoint, and the dollar keeps its downward trajectory, the stock market will rise. How that can be indicative of a stable economic turnaround is open for debate.
From Wells Fargo:
- Net foreign purchases of long-term securities printed at $28.6 billion in August, in line with market expectations.
- Foreign investors continued to purchase Treasury securities and equities in August. In contrast, purchases of agency securities and corporate bonds, which include structured products, remain weak.
Yet total capital inflows are still not enough to support the dollar. Europe is now locked in a vicious cycle whereby its export economy will continue suffocating, resulting in a weaker dollar, a stronger euro, a failed asset inflation scheme (sorry, Bernanke can't be everywhere at the same time), even less exports, an even higher euro, and yet another isolated bubble, however with totally different dynamics than the U.S. version. Eventually, every country will be forced to consume just what it can produce, with viable European exporters going the way of the dodo, courtesy of Bernanke spreading the Moral Hazard Doctrine, eradicating the U.S. middle class, killing the dollar, and inflating the latest stock market bubble merely to bail out his Wall Street entourage.
More from Wells:
- Lured by higher yields abroad, American purchases of foreign securities remained positive in August.
- Including short-term securities and bank lending, only $10.2 billion worth of capital entered the country during August, which is not enough to support the current account deficit. Until net capital inflows pick up, downward pressure on the dollar will likely continue.
h/t Ned
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So maybe some Americans might want to stop sending their money overseas for awhile and see what happens.
Then again, maybe the collapse of the purchasing power might help us learn that lesson.
No matter, all we can really do is watch the yen.
Yeah, let's shut down our non-essential overseas military bases in places like Japan, Germany and Spain for a month.
"Bernanke spreading the Moral Hazard Doctrine, eradicating the U.S. middle class, killing the dollar, and inflating the latest stock market bubble merely to bail out his Wall Street entourage."
I smell a sit-com.
Peg Bundy is busy right now with "Sons of Anarchy".
Well, devaluating the exchange rate, inflate the stock market and push the export is the technique that Italy used many times after WWII till the introduction of the Euro, ... and there was a very successfull technique (I am an old Italian now teaching abroad). We Italians called it the "competitive devaluation"
Now, many Italians are regretting the good times of the weak Italian lira, where by devuating the exchange rate we could solve (almost) all commercial problems.
Well, Bernanke is doing the same thing on a large scale.
italy lira was used as a proxy for who wants to be a turkish millionare. The USD is the world's reserve currency, embedding extraordinary privilage to borrow a phrase. With it comes responsibility; burning everyones village to save them either means BB: (1) is acknowledging the $ is finished as a reserve fx and all that matters now is a slow "controlled" death/default or (2) he really is that arrogant about the role of the dollar
Well, the USD has now become ONE of a basket of reserve fx. I am currently doing a lot of visiting professorships around, and talking with students and foreign colleagues and banking friends, it has clearly emerged that now everyone abroad keep (on average) 40%/50% dollars, 30% euros and the remaining in local currencies or other foreign fx.
Morals! Does anyone have any anymore? It is a slippery-slope this science is.
The vicious cycle of US$ carry trade is working.
Well, may be that is why Italy got nowhere in my life span.Constant inflation and stagnant job market(from what I read). The problem here is that this is coupled with high goverment and public sector debt. So no matter how much you devalue the dollar,people debt is in local currency,and they will not be able to reignite economic activities. You are only burdining them with higher prices until economic activities totally seezes.
May seem paradoxical, but with the euro there is no almost no inflation (currently approx 0.5) or very low, together with a stagnant job market (but this well before the global financial crisis). Whereas before the euro, we had high inflation and quite a decent job market: with this regard , I remember that in Italy the underground economy is around the 30% of the gdp and the "black jobs" are quite abundant,so the official statistics about unemployment are only partially true.
As for the devualating the exchange rate, it works very good if your economy is export oriented (like Italy) and the manifacture sector in the main one. Unfortunately, as everyone knows, the US is based on services and the manifacture sector has been dismantled and relocated in the far east.
Thank god France upped their Bond holdings by $10.5 B (41% increase) in return for the US administration apologizing for Freedom Fries.
More likely for using AIG to bail out SocGen. And for backing the French selection of Holland as the test bed for a media fostered bank run to relieve pressure on the main play.
That sounds a bit more plausible.
Do not underestimate the honor of the French. Especially when they're Belgian fries. With mayonnaise.
This will all come to a horrible conclusion.
Interest rates have to rise.
Higher interest rates would attract foreign capital. Ben's keeping rates at 0% and printing money to fund the deficit will cause capital to flee the country. Magic.
The plan is to ignite the fires of inflation is the rest of the world and then feed the fire with our currency.
Google just announced a $3 billion dollar 3rd quarter profit that almost matches the entire GDP of Barbados.
Does no one consider that a good part of the profit of all these multinational companies originates from the GDP of other countries such that while the US economy is about $14 trillion, the global amount that US Corporations are responsible for or oversee probably matches or exceeds that amount?
YUM brands revenue increased by like 30% in China in thQ3 as it struggled to keep up with the Chinese demand for KFC and Taco Bell. While it operates on Yuan, it returns as USD. How long a list of US companies and the countries they operate do I need to provide? Hell, even GM is building cars in China and selling them to the Chinese's and keeping the profit.
As far as inflation is concerned, it looks like Australia and Canada will lead the way. Both heavily dependent commodity driven economies. We send them a $1 and they send us gold and ore.
The interest rates of these countries will soon skyrocket due to an overheated commodity market and may even challenge that of Mexico when a severe pullback in the US economy on the downside of the W recovery will do nothing to ease the inflation spiral while at the same time the demand for exports evaporates.
I'm not saying spending is out of control. I'm not saying the US comes out scott-free. But would we be as concerned about the doomsday fate of the USD if a new term, PWR (proportion of world revenue) was $28 billion?
With all the gloom and doom about the trade deficit, I'm surprised that no one has mentioned one reason that America has a trade deficit - we give away all our best stuff for free. Twitter, facebook, youtube (and a lot other Google stuff), etc. It is all given away free. It is a huge export of American know-how for which we receive nothing. It is a huge drain on the economy because all the energy expended on these products adds nothing to our GDP because the products are free. Our failure to find a way to monetize the internet is costing us dearly!
As soon as I saw the data I HAD to go see what you thought about it.....you never disappoint...can't wait for the second half.
Meet the 'father of world currency'
http://www.wnd.com/index.php?fa=PAGE.view&pageId=112864
The capital "inflows" are scary, it looks like an exodus and you know what they say about ponzi systems - The ponzi crashes when new incoming cash does not support the scheme(s).
Any good finance person understands that earnings can be manipulated, but cash flow is both honest and king. So, if you want to understand real risks we should look to the cash flow of the countries as well as companies for investment purposes. Any wise company reissued shares during the melt up to pay down long term debt, because if interest rates rise significantly countries & companies will be spending most of their earnings on interest payments.
Just a thought, could the market run up be as simple as - Let's make hay, for tomorrow we die?
Too simplistic though from a behavioral POV it makes some sense.