Posted on Monday, October 19th, 2009
By the Center for Geoeconomic Studies
China has accumulated a massive stock of U.S. dollar reserves in recent years. Statements of concern from China regarding the risk that U.S. economic policy might undermine the future purchasing power of these assets has fuelled the market’s concern that China may shift away from dollar purchases. Yet the chart shows that over the 12 months ending in July 2009 China accumulated more dollar-denominated assets, mainly U.S. Treasuries, than foreign assets in total. Despite its rhetoric, China has thus far taken no actions to wean itself off of the dollar.
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Posted in Capital Flows, China, Currencies | 0 Comments »
Posted on Wednesday, October 7th, 2009
By the Center for Geoeconomic Studies
This chart shows who financed the massive amounts of debt that the U.S. government issued in the first half of 2009. The total net issuance of treasuries and agencies is shown on the left, and economic sectors are ordered from left to right by the size of their total purchases. Given the federal backing of the GSEs – government sponsored entities such as Freddie Mac and Fannie Mae – it is best to look at the sum of treasuries and agencies rather than treasury issuance alone. Through the first two quarters of 2009, issuance has been financed primarily by official buyers. Official buyers often have motivations other than profit. The Federal Reserve is buying debt as a part of its quantitative easing program, while some foreign central banks are accumulating debt as a function of their currency policy. The Federal Reserve plans to slow and then stop its purchases by the end of the first quarter of 2010. This raises the question of who will replace this source of demand, and at what price.
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Posted in Capital Flows, Central Banks, U.S. | 8 Comments »
Posted on Monday, September 21st, 2009
By the Center for Geoeconomic Studies
This chart shows China’s overweight or underweight observed external investment position since 2000 in a given sector relative to that sector’s share of world market capitalization. A positive number indicates that China is overweight in a given sector; a negative number indicates that China is underweight. As the chart below shows, China is most overweight in materials and energy. This reflects a desire for stable economic growth, which, in the Chinese government’s view, requires a secure source of inputs. As other sectors in China develop, along with the managerial skills required to integrate international acquisitions, China’s aggregate portfolio allocation will likely even out.
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Posted in Capital Flows, China | 6 Comments »
Posted on Monday, August 31st, 2009
By the Center for Geoeconomic Studies
This chart shows the yearly change in purchases of securities backed by U.S. government-sponsored enterprises (GSEs) and in securities issued by the U.S. Treasury. In late 2008 and early 2009, U.S. households and the rest of the world began selling GSE-backed securities, such as those issued by Fannie Mae and Freddie Mac, and began purchasing more Treasury securities, which are considered lower-risk. American banks, however, moved in the opposite direction, increasing their purchases of GSE-backed securities. This suggests a growing appetite for risk in the banking sector.
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Posted in Capital Flows, U.S. | 5 Comments »
Posted on Thursday, June 25th, 2009
By the Center for Geoeconomic Studies
The early 1990s witnessed trade tensions between the United States and Japan, even though the U.S. current account deficit stood at about 1% of GDP and Japan is a democracy. As our chart shows, the world is now trying to manage much larger imbalances, and two of the major surplus countries are not democracies. Resolving these imbalances may be more difficult because of the dependence on exports in China and Germany, the two leading surplus economies.
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Posted in Capital Flows, Trade | 2 Comments »
