Sunday, March 22, 2009

Treausury International Capital Report or The Lifeboats Are Launched But No One Told the Passengers

While there is a certain catharsis fantasizing about arrest, flagellation, defenestration, and hanging from streetlights the members of the financial elite and their political accomplices who have, after two decades of unrestrained greed and rapacity brought us to our present state, the unfolding crisis takes on new, largely unappreciated dimensions with each passing day.
A good example of this is the story now unfolding in Treasury International Capital report released for January of this year.This shows that after years of influx of foreign capital the U.S. saw a loss of $150 billion.
Julian Delasantellis in AsianTimes Online lays it out:

"The first article I ever wrote for Asia Times Online, (US living on borrowed time - and money" March 28, 2006), introduced readers to the US Treasury's monthly Treasury International Capital (TIC) report, a compendium of how much investment or short-term capital the US receives from foreign sources every month. Back then, the US was quite the popular parking spot for foreign capital, frequently drawing in over $100 billion a month.

That worm has certainly turned; the US in January, the last month data is available, was actually net drained of foreign capital, to the tune of $150 billion. On his blog at the Council of Foreign Relations, economist Brad Setser interpreted the data this way.
Today's TIC January data was a disaster. $150 billion in (net) capital outflows (negative $148.9 billion to be precise) cannot sustain even a $40 billion trade deficit.
Obviously, the concern is that those with still the capital to lend to the US, primarily China, seeing the huge increase in US government demand for borrowed funds with its now huge and ever-burgeoning budget deficits being used to finance the economic crisis recovery programs, will fear that the US dollars they use to buy US debt will depreciate in value, devastating the value of their investments.

Previously, China has tried to give messages that slowly pulling out of its dollar positions was exactly what it wanted to do, but America's cherished habit of ignoring anything that foreigners say to it had it lending a stone-deaf ear to the warnings.

Last week, as detailed on this site with W Joseph Stroupe's three-part series (see Dollar crisis in the making Asia Times Online, March 14-18, 2009) and by Olivia Chung's article on Chinese Premier Wen Jiabao's warning to the US to maintain the value of its currency as a matter of national honor, (see Wen puts US honor on the debt line Asia Times Online, March 14, 2009) the message seemed to be being sent as loudly and clearly as possible. Still, the US stockmarket ran true to form - it ignored Wen's warnings, and continued its recent bounce off the lows."

Meanwhile the debate rages on regarding President Obama's NCAA picks and the signigance of possibly impugning the reputation of Special Olympics participants. Indeed, why should we worry knowing the steady hands of Geithner and Sommers are on the wheel and in the till.

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