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WASHINGTON, Feb 15 (Reuters) - Net inflows of capital into U.S. assets eased to $61.3 billion in December, in line with expectations and enough to finance the nation's current account deficit that month, a Treasury Department report showed on Tuesday.
Net inflows of capital in December slowed from a revised $89.3 billion in November that was originally reported as $81.0 billion. November's inflow was the highest level since $103.9 billion in May 2003.
Currency analysts had forecast a net inflow into U.S. assets of roughly $60 billion for December.
Financial market participants watch the report as a measure of foreigners' appetite for U.S. assets.
The United States depends on foreign investors buying U.S. assets like Treasury bonds to finance its current account deficit, and so net inflows short of the deficit could have increased selling pressure on the dollar.
The dollar initially recovered some losses against the euro on the news that December's flows would have been just enough to offset the $56.4 billion monthly U.S. trade deficit in the last month of 2004.
For those paying attention, these are very intense times.
Euric wrote:As for China, westerners foolishly think China would not screw the US, because the US is China's biggest customer. They falsely think China is interested in making profits. China cares nothing about money. China wants to be a military power.
Notice how quickly the director of South Korea's central bank ate his words when his offhand remark about diversifying his currency portfolio cause a sell-off of dollars on Tuesday, rattling stock markets on three continents. Nobody wants that. That's why the looming economic crisis the pundits are all wringing their hands about -- if the dollar went into free fall, if the Chinese quit buying treasury bonds, if the U.S. economy stalled and sent the world economy into the tank -- is less likely than they think. The more the dollar falls, the more bonds the Chinese buy to defend the value of their investments and keep their number one customer happy. The U.S. is still the world's largest economy, and for now, there's nowhere else for the money to go.
It is a mistake to look at the falling dollar as the result of the profligacy of the American consumers, and a direct outcome of the American trade deficit. This is just a decoy. Admittedly, it is a clever one as far as decoys go. It is designed to divert attention away from the real culprit, which is the yen carry-trade and its obscene profits
Chuck wrote:Difficult for me to judge it on it's merit (as I'm not an economist, thank god), but
The Decoy of the Falling Dollar
http://www.financialsense.com/editorial ... /0227.htmlIt is a mistake to look at the falling dollar as the result of the profligacy of the American consumers, and a direct outcome of the American trade deficit. This is just a decoy. Admittedly, it is a clever one as far as decoys go. It is designed to divert attention away from the real culprit, which is the yen carry-trade and its obscene profits
Kingcoal wrote:Peak Oil will force the world economy into recession (Americans quit buying), which will force China and Japan to make some hard business decisions. In other words, when Americans stop consuming their goods, those countries will have no reason to keep propping up the dollar.
The obvious answer in such circumstances would be to restrain US consumption. But were Americans to begin to significantly pare their debt burdens, aggregate demand would likely collapse and trigger something not unlike what Fisher described in the 1930s.
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