Pot calling kettle black?
One thing that has puzzled me is that some of the countries that have — implicitly at least — been most critical of the expansion of the Fed’s balance sheet during the crisis have long had much larger balance sheets than the US Federal Reserve.
Before the crisis, the Fed’s balance sheet was around 6% of...
Doesn’t a smaller (external) deficit mean less dependence on (external) creditors, including China?
There is a common argument that the US depends more on China now than before because the US needs to issue so many Treasury bonds to finance its fiscal deficit.
I disagree, for two reasons:
First, the trade deficit is down significantly, so the amount that the US needs to borrow from the rest of the world...
The problem with relying on the dollar to produce a real appreciation in China …
Is now rather obvious. The dollar goes down as well as up.
Last fall, demand for dollars rose — in part because Americans pulled funds out of the rest of the world faster than foreigners pulled funds out of the US. The dollar soared. ...
The faster the rise, the bigger the fall?
Cross-border bank claims - according to the Bank for International Settlement (BIS) — shrank in the first quarter, though at a slower pace than in the fourth quarter. That basic storyline also holds for the emerging world: the total amount the major international banks lent to the world’s emerging economies fell in...
Not necessarily always stabilizing …
One common argument — at least prior to the crisis — was that sovereign investors, because of their long-term focus, were generally a stabilizing presence in the market. Sovereign wealth funds in particular. And presumably central bank reserve managers as well. After all, in many cases, the line...
Two trillion and counting …
China’s latest surge in reserves – a surge that look its total holdings over two trillion dollars – didn’t really register in the financial media. China’s first trillion was a big story. The second trillion, not so much. It generated a few news stories and blog...
SAFE, state capitalist?
One of the questions raised by the expansion of sovereign wealth funds – back when sovereign funds were growing rapidly on the back of high oil prices and Asian countries’ increased willingness to take risks with the reserves – was whether sovereign funds should best be understood as a special breed of private investors motivated...
And now, the rest of the story: long-term portfolio flows have fallen by more than the trade deficit
The goods news: the US trade deficit has shrunk. On a rolling 12m basis the trade deficit is down to around $500 billion, and the data from the last few months suggests that it should fall even further.
The bad news: the US trade deficit hasn’t shrunk by as much as foreign demand...
Don’t ignore the adjustment that has taken place; the US trade deficit is half its size this time last year …
Most reporting on the May trade data tried to fit it into the “green shoots” meta-narrative, thanks to the small uptick in exports. Never mind that total exports were about equal to their level in March even after the May uptick– and that about half the uptick between May and April came from...
Huge thanks
This is Brad Setser. I am back, and will resume posting soon.
But I first wanted to offer my enormous thanks to Mark Dow of Pharo and Rachel Ziemba of RGEMonitor for filling in here when I was away. They set a standard that I will have a hard time matching. ...
