Financing capital flight / Brad Setser

interesting stuff from Brad Setser. click on the headline to read the full piece. i also highly recommend his excellent blog

http://www.rgemonitor.com/blog/setser/

bemerkenswertes wie so oft von Brad Setser. klickt bitte auf die überschrift um den rest zu lesen. kann seinen erstklassigen blog uneingeschränkt empfehlen. wirklich klasse.

The other story in the March data? The big rise in US purchases of foreign securities. US residents bought about $40b of foreign securities, including an usually large amount of foreign debt -- $32b.

That is one reason for the dollar’s weakness.

It also explains the weak total TIC flow number in March. The $100b in headline foreign purchases of US debt and equities is deceiving. Net inflows were a bit under $50b – less than the March current account deficit ($75b or so)

If sustained, that level of “diversification” by US residents implies rather large outflows – about $500b a year. To finance that level of outflows and its current account deficit, the US would need to attract about $1400b in inflows.
That is a lot. It might imply the US would need a bigger credit line than even the People’s Bank of China is willing to provide. Financing the United States current account deficit is one thing. The current account deficit is the counterpart to China’s current account surplus (read export jobs). Financing capital flight (i.e. portfolio diversification) by US residents is another …