“Where in the world will the money go?”

Verbier. Aspen. London. Antibes. Paris. Vancouver. Miami. New York. Costa Esmerelda. Luxembourg. Cyprus. Malta. Channel Islands. BVI. Cayman. Bermuda. Geneva. Lugano. Zurich. Zug.

The end of the American dream is now within sight.

And: “…In his comments, Putin zeroed in on the worst features of Russia’s post-Soviet economy that is rampant with corruption… “We are witnessing the laundering of billions of roubles every month as well as transfers of vast funds abroad,”…” http://www.washingtonpost.com/wp-dyn/content/article/2006/09/15/AR2006091500516.html?nav=rss_business/industries

Where in the world will the money go?

emmanuel … well, the markets don’t make much sense to me right now. i commented on the G-7 over the weekend (in the post “too much to read”). The communique didn’t say anything new — and didn’t single out the yen. But trichet certainly tried to talk up the yen (v. the euro) after the meeting, to know obvious effect.

i cannot see why Paulson’s reiteration of the strong dollar is the US interest mattered — what else is he going to say? But it does seem likely that folks who were betting on the yen (whether b/c of an expectation that the G-7 would say something or as a proxy for the Yuan) are unwinding their yen positive positions as the G-7 didn’t trigger a yen move and Paulson and Zhou have dampened down expectations for any big yuan move around Paulson’s trip. At least that is all I can think of …

The TIC data really is crappy — average flows over the past four months are only in the $50b range — not enough. there also were not net FDI inflows or net bank inflows in the q2 data. so the source of financing for the US right now really is a mystery … but the TIC data also looks backward, and the treasury rally in august/ early sept. suggests that flows to support the treasury market reemerged subsequent to July.

Looking forward to some answers about the financing of the deficit.

I am also wondering who is buying US assets given the downside risk on the US dollar.

And about US inflation being under control (from Danske Bank):

The inflation report was actually not as soft at it seemed at first glance, as the exact core inflation figure was 0.243% m/m (in fact very close to a rounded figure of 0.3% m/m). The subcomponents of core CPI reveal that rent-of-shelter inflation, which has been boosting core inflation in recent months, slowed significantly from 0.5% m/m to 0.25% m/m in August. This might indicate that rent-of-shelter inflation is about to take a temporary breather. While our 12-month model indicates that this index should head significantly higher within the coming year, our 3-month model suggests that we could be facing some softer months in this component (see charts below). In contrast, inflation in the remaining components picked up significantly in August. Core goods inflation jumped from -0.15% m/m to 0.21% m/m, while services ex. rent-ofshelter increased from 0.1 % m/m to 0.26% m/m. Hence, there are no signs of inflation easing in these components.

So much for inflation fighting.

The Dane

FYI.. An interesting piece

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/09/12/cctrade12.xml

I keep harping on this theme, but it boggles me so: OK, the TICS shows a big shortfall, and yet the dollar has pushed the euro below 1.27 and the yen above 118. Call me an antiquarian, but my understanding of economics is that you can only go into deficit spending if there’s someone willing to give you more to spend. Go figure. In this mad environment, I soon expect bond prices and yields to move in tandem.

First quarter revision: “the balance on income was revised to a deficit of $2.5 billion from a surplus of $1.9 billion.”

“The deficit on income increased to $4.1 billion in the second quarter from $2.5 billion in the first.”

The data gods giveth, and the data gods taketh away…