the profits from such production enter into the US BoP in the income balance. that is as it should be.

tis true that foreigners bought large sums of treasuries and agencies. we even know who those foreigners are: central banks, and specifically the PBoC. When US and other firms producing in China want to convert $ into RMB, they sell those $ to the PBoC …

He also said:

The dollar is still the currency of choice 65% of the time, and that shows no signs of changing. In fact, foreigners bought another $230 billion in Treasures and agencies in the first five months of this year.

Foreign Direct Investment, which rose 60% year/year in the second half of 2007, is sitll rising at a very fast clip.

but.mr.medvedev.and.dave.chiang.and.i.are.in.agreement.

http://www.reuters.com/article/ousiv/idUSL0749277620080607?sp=true

the.geopolitical.tide.will.run.against.financial.unilateralism

fairly.or.unfairly.a.slump.will.be.blamed.on.incompetence.

failure.to.control.financial.operators.in.the.general.
interest.

a.move.to.a.globally.monitored.reserve.currency.

ending.the.bretton.woods.picnic.

Yes. So is China’s reserve accumulation.

The difference (as Brad notes indirectly) is that the Fed is fully sterilizing the effect of its new asset activity. PBOC isn’t.

Yeah. It’s horrible that the Fed bails out people that the banks owe money to.

Sayyyyy…..

Just out of curiosity, do you have any sort of checking or savings account? Maybe you don’t. But does your employer have some sort of checking or savings account….

Now what is a bank account. It’s when you hand some money to a teller, and they give you a slip of paper promising that you can take out the money when you want. I guess that makes the person with a bank account a creditor (i.e. someone that the bank owes money to).

Yes the Fed has sucked $300 billion out of the real economy and given it to banks to bail out them and their creditors.

Criminal.

By the way (speaking of crimes) we should start enforcing the EEO laws that require you to try to find a qualified American before hiring a foreigner, especially in those same banks that are being bailed out with our money.

Cheers!

2fish — I agree that the change in the composition of the fed’s balance sheet has been nothing short of extraordinary. my point was only that its overall size hasn’t grown.

Mark — if you look at either the asset side of the fed’s balance sheet (its holdings of treasuries and other securities) or its liability side (cash outstanding + banks mandatory reserves with the fed) there hasn’t been a big change. This contrasts with the last easing cycle, which was — i think — accompanied by a much larger growth in the size of the fed’s balance sheet. The easiest way (I think, this isn’t my true area of expertise) to explain the fall in US rates absent a major increase in the supply of base money is that demand for money (at any given interest rate) has fallen as a result of the crisis. If the fed had wanted to keep rates higher, it would have needed (in this theory) to have reduced base money.

In some sense though the precise explanation doesn’t matter so much — the key is that the fed hasn’t (objectively) been running the printing presses. Data on cash in circulation is released every thursday and it just hasn’t increased much.

Emerging market central banks that peg to the $ by contrast have been running the printing presses — and expanding the size of their balance sheets significantly.

DC — I didn’t follow m3 when the fed tracked it, and I haven’t started following it just b/c the fed stopped tracking it. maybe that is an oversight on my part, but my training is as a balance of payments economist and i have enough on my plate as is … now if you could just convince the CIC and the gulf SWFs to disclose more data, i could save a lot of time and maybe follow more variables.