The Fed’s fault in the stock market bubble is less obvious than in the real estate bubble. If during the nineties, the US had a market-produced money supply (where people can only borrow money that has been saved instead of freshly printed) rather the Fed, investment demand would have driven interest rates up & thereby choked off the irrational exuberance.

that said, the fall in the net “other” payments puzzles me — the net stock of claims on the us is rising, and the fall in some rates in q3 will have an impact with a lag. and it isn’t yet clear to me how the combination of lower fed funds/ lower treasury rates and higher libor/ credit spreads works its way through the overall income balance.

We will see what happens in q4 — i suspect some of the improvement dissippates on the back of higher oil.

the reasons why aren’t really a mystery — currency adjustment works, and even if the US hasn’t slipped into a recession, it has slowed v the rest of the world. but the basic trend improvement is unambiguously good news. the big caution is that by my analysis, net private demand for us assets is falling even faster than the us external deficit …

re: errors — the big positive in q2 05 seems linked to preparation by us firms to take advantage of the HIA provisions in q3 and q4; that certainly explains the strength of (net) capital inflows in those quarters, as the HIA led to a fall in gross outflows (fdi earnings were repatriated rather than reinvested … ). I don’t think the same dynamics are at work now.

guest — good points.

This may correlate with general market volatility, risk aversion, and a lack of near term commitment to longer term investment choices.

A couple of very brief points:

- the statistical adjustment is indeed large but not by no means without precedent. As a share of GDP, it was +2.45% of GDP in Q3. The record at least going back over the last 40 years was +2.8% of GDP seen in 2005Q2. Note this followed by large negatives in the next two quarters i.e. too many net capital inflows relative to the current account balance(-2.2% of GDP in Q3, -2.4% of GDP in Q4). Maybe the rebound in the October TIC data are setting us up from something similar in Q4 this year???

- second, take a look at the improvement in the current account deficit as a % of GDP over the last year i.e. the last four quarters. This has now improved by almost 1.5% points (1.44% points to be precise) in the year to Q3. Outside of 1991 when, as is well known, the current account data were distorted by a surge in transfer payments relating to the first Gulf War, this is the most rapid 4-Q improvement since at least the 1950s. Surely worthy of comment? Notably, this has been achieved despite the impediment of near record oil prices and without domestic recession, the usual trigger for sharp improvements.

Richard Iley

If you have data from the key creditors, you don’t have to rely on the sisyphian task of trying to count flows … and the more the city courts SWFs even in the absence of any increase in their transparency (and the more the UK defends unreformed SWFs in the g-7), the less pressure there is for change.

And the more “dark” flows (to differentiate them from Hausmann’s dark matter, which comes from the income side of the current account ..)

Real think — true, but the chinese still had more $ left over b/c their exports increased more than their imports, and the Saudis and argentines have to do something with the dollars they get. If they just hold currency, that would show up in the current account data (line 67, to be precise). the us thinks foreigners did end up holding about $5b more in currency than they started, but that cannot finance a $180b deficit.

Given the errors, omissions, and ex post revisions that are part and parcel of the TIC, is it even worth publishing it monthly?

In Q3 the price of energy and agricultural commodities was significantly higher than in Q2. Therefore China (to give an example) needed more dollars (not Treasuries, not bonds, not stocks, but hard cash) to pay for Saudi oil and Argentinian wheat and soybeans.