Eleven Trillion and Growing But Who's Worried?
by Charles Lemos, Tue Mar 17, 2009 at 10:10:04 PM EDT
The National Debt surpassed eleven trillion this week without much fanfare. According to Politico that "whopping number" may have major ramifications for President Barack Obama, as he tries "to push through a raft of big-ticket bills on health care, energy, education and climate change -- while also attempting to stabilize the swooning economy." Certainly, it is daunting. But I am more worried about the other bit of news that is also passing without much fanfare.
Net overall capital outflows from the United States were reported at a record $148.9 billion in January, the Treasury Department said on Monday.
The outflow, which includes short-term securities such as Treasury bills, was well short of covering that month's $36.03 billion trade deficit.
The prior outflow record was $133.0 billion in August, 2007.
"The market impact is minimal because the data was two-months old," said Matthew Strauss, senior currency strategist, at RBC Capital Markets in Toronto. "But the reluctance of foreign investors to buy U.S. assets is a concern for the dollar going forward."
Investors sold a net $43 billion in long-term U.S. securities in January, the Treasury Department said. Demand for long-maturity securities such as bonds, notes and equities shifted from a revised inflow of $34.7 billion in December.
Net purchases of U.S. Treasuries added up to $10.7 billion, down from $14.97 billion in purchases in December.
Private overall net outflow of $158.1 billion was also a record, up from a revised inflow of $77.9 billion in December and exceeding the previous August 2007 record outflow of $110.7 billion.
Both China and Japan increased their U.S. Treasury holdings.
China's holdings rose to $739.6 billion in January from $727.4 billion in December.
Japan's U.S. Treasury holdings rose to $634.8 billion in January from $626 billion on December.
The reluctance of foreign investors to buy US assets is a concern period. Another worrisome development is the Japanese current account. Figures released earlier this week showed that Japan's current account balance swung to its largest deficit on record in January to 172.8 billion yen ($1.8 billion). It is the first current account deficit in Japan in 13 years as Japan's export sector contracts impacted by the global downturn. This, in turn, is likely to impact Japan's ability to buy US treasuries.