Thursday, May 17, 2007

Capital Flight: Will the supports hold?

The other day I was checking the US TIC data for March 2007 and was surprised to see yet another large exodus of capital from the US by US investors. Thus far this year, US investors have purchased US$78B of Foreign Long Term Securities, which equates to US$312B over the year.

That means, in order to keep the value of the US$ stable, foreigners will need to purchase enough US assets to cover not only the US Trade Deficit of, let's call it US$750B (assuming a US$62B/month Trade Deficit) but also that extrapolated US Capital Outflow of US$312B (or more if capital flight intensifies). This assumes the Net Income figures for the US remains around zero.

I wonder if the US$ supports, provided so willingly by Asian and ME Central Banks in pursuit of mercantile advantage, will be able to withstand the additional burden of capital flight from the US?


Ruby said...

Hey Dude! We're slowly slipping off the edge! But it's OK, I've moved to the hills!

I am now situated in the Humboldt County, behind the Redwood Curtain as the locals say.

Our money is trash, so I'm hooking up connections on the farm.

Been busy moving and starting a new job, and just checking into your posts now. Always a unique take. But the data on this one says it all.