Brad Setser

Brad Setser: Follow the Money

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Exports of Treasuries, and other fun statistics

by Brad Setser
October 28, 2004

2004 US exports of goods (based on year to date trade data): roughly $800 billion.

2004 US exports of dollar denominated debt (based on the q1 and q2 balance of payments data): $800 billion.

It is not hard to see where the United States’ current comparative advantage lies …

The $800 billion number is not hard to generate: take the $670 billion expected 2004 current account deficit (a reasonable estimate if oil stays above $50), add in a net outflow of FDI of $130 billion (the net outflow in q1 and q2 was $65 billion), and assume that the TIC data accurately shows that the US is buying more foreign stocks than foreigners are buying US stocks, so that net portfolio equity inflows are either negative or a wash. Voila, $800 billion in exports of debt to fund the current account, FDI and the purchase of foreign stocks.

You also can get to $800 billion or more by doubling first half sales of reserve assets to foreign central banks($200 billion in the first half, double it = $400 billion), adding in private purchases of treasuries (annualized, that gets $200 billion), and then if you make some assumptions about portfolio equities outflows, a derived estimate of the sale of net debt securities from the overall securities data in the BOP (annualized, $300 billion). Annualizing the first half does produce the the best of all forecasts in this case, since Japan intervened bit time in q1 but not so far in the second half of the year. But it still gives you the basic numbers.

Adding in service exports makes everything a bit less dire, but the basic points stands. Our exports of debt securities have gone from $160 billion in 2000 to over $700 billion in 2003 to well above $800 billion if current trends continue in 2004. A growth industry if I ever saw one.

Another fun statistic, at least to me, though on an entirely different topic — emerging market debt.

World Bank outstanding loans: roughly $100 billion

IMF outstanding loans: also roughly $100 billion Outstanding emergingm market sovereign bonds in the EMBI (index of dollar denominated emerging market bonds): a bit more than $200 billion. The Wall Street Journal article on PIMCO’s El-Erian noted that he alone holds $15 billion of those bonds — a large share. But if El-Erian holds a lot of Brazil, the IMF holds way more.

Add in the euro EMBI if you want, that gives you roughly another $50 billion. But then you also probably should add in the total lending of the regional development banks, and I don’t have a ballpark estimate for that.

Two points: one, the emerging market debt market is tiny relative to the United States extenral deficits; and two, the official sector (IMF and World bank) is simply not small in relation to the international soveriegn bond market.

In my view, all the rhetoric about markets overwhelming the IMF and the official sector ought to be qualified a bit — at least if you think the relevant market is the market for long-term external lending to emerging market sovereigns. The picture looks a bit different if you add in cross border bank lending, bond issues by private borrowers and, above all, the potential for domestic capital flight, but that implies recognizing that emerging market crises are not simply caused by long-term sovereign bonds (a point Nouriel and I make in our book on emerging market financial crises). I hope to use Argentina’s impending restructuring to write a bit more about emerging market debt, to go along with my posts (rants?) about rising US external debt.

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