A good sign of impending economic death is when people stop lending money to you. So regardless of the stories of "doom and gloom" that have been emanating from all corners of America since mid-2007, the good news is that foreigners are still buying U.S. debt.
(Click to enlarge)
Looks like the total (which now is mainly debt since direct investment is minimal) might be heading up to the levels achieved in the "good-old-days" (pre mid-2007) when America managed to sell upwards of $700 billion of (mainly) debt every quarter, in order to get hold of foreign exchange to be able to finance its trade deficit.
In fact, if you plot the U.S. trade deficit against the total on that chart, over that period, there is an uncanny correlation. Almost as if the amount of oil and goods from China destined for Wall-Mart (WMT) that America bought, (that now account for 40% of the value of imports), was predicated by how much the country could borrow from abroad to pay for that, given that a long time ago, America gave up on the quaint old-fashioned way of paying for imports, by selling exports.
Interesting also that the "run" on "U.S. securities other than U.S. Treasury Securities," which you can find on Line 66 of the BEA report and some people call "toxic" assets, appears to be over (that's the red line), and if you squint there is a hint that market clearing might be starting to happen.
Of course the Q4-2010 numbers don’t account for Bill Gross' dumping his U.S. Treasuries with great fanfare, nor do they account for the effect (if any) that the warnings from Meredith Whitney about $200 billion of the $2.8 trillion of municipality debt being ready to default "sooner rather than later."
Or perhaps Bill sold his Treasuries so that he can start bidding for some nicely discounted toxic once the Fed (and it's partner's in crime) starts to bleed some of that $1.25 trillion worth, out of quarantine?
As in PPIP Mark- II?
Can’t wait to see Q1-2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
