from Follow the Money

Another month, another $90 billion in inflows

January 18, 2006

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Nothing really jumped out at me in today's TIC data.  The basic pattern hasn't changed.   Foreigners bought tons of US debt - nearly $100 billion in November.    Some of that financed the US current account deficit, some of its financed US purchases of foreign stock - Americans bought $14 billion in foreign stocks in November.

If you believe the data, private investors abroad did most of the buying.  Private investors - especially private investors in London -- loved US Treasuries in November for some reason.    Official purchases of US long-term debt totaled only $6 billion.  Most of that came from China, which, by my calculations, bought $5.8 billion in treasuries, agencies and corporate debt (it sold $0.7 billion in T-bills).

And if you believe the data, official buying in 2005 is running at about ½ its 2004 level.

Two cautions though: 

Foreign central banks may not have bought many bonds in aggregate, but they seem to like t-bills.   Official holdings of T-bills rose by about $15 billion in November.

And the US sold an awful lot of Treasury bonds to the UK in November.   Amazing how a country that has a current account deficit is the biggest financier of the US, while OPEC's holdings of Treasuries have stayed roughly constant over the year.    Lots of folks - though perhaps not Lex at the FT - think the UK has a nice little business going acting as an intermediary between Russia, the Gulf oil sheiks and Asian central banks and the US bond market ...

The fact that so little of China's reserve increase and so little of the Russian/ OPEC current account surplus shows up in the US data is the core reason why I doubt that the US data offers a realistic breakdown of the private/ official split.

One last point.  $90 billion in net inflows - and $104 billion in foreign purchases of US stocks and bonds - sounds like a lot.  And my any objective measure it is.  But if the US runs a current account deficit of $950 billion (plus) in 2006 and wants to also buy $15 billion a month/  $180 billion a year in foreign equities (or for that matter, finance direct investment abroad), foreigners will need to buy roughly $95 billion a month in US bonds and equities.   

Today's data was good, but it is basically just in line with the United States current aggregate long-term financing need.

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