Foreign Investment's Flip Side

The Washington Post ^ | Friday, February 25, 2005 | Paul Blustein

[Willie Green]

U.S. Trade Deficit Swells Along With Consumption, Debt

Every other night or so, the calls start pouring in from Asia to the homes of Peter Leonard and several traders he supervises at Nomura Securities in New York, jolting them awake sometimes as often as five times a night.

The calls come from places such as Tokyo, Shanghai, Hong Kong and Singapore, where investors want to buy U.S. mortgage-backed securities, which are essentially giant packages of mortgages on thousands of American homes. Such sleep disturbances have roughly doubled in the past year, according to Leonard, reflecting the sizzling demand among Asian money managers for a piece of the U.S. mortgage market.

The interrupted slumber of Nomura's New York mortgage traders is one small facet of the rapidly rising flow of foreign money into U.S. financial markets. This torrent of capital from overseas has become indispensable fuel for the U.S. economic engine, helping to keep interest rates low.

But the influx of capital has an ominous flip side -- the ballooning U.S. trade deficit, which soared 24 percent in 2004, to $617.7 billion. The dollars spent by Americans on Japanese cars, Chinese televisions and other imported goods end up in the hands of foreigners, who plow them into U.S. Treasury bonds and other securities like the ones sold by Leonard and his fellow traders.

Therein lies a serious worry for many economists: As the deficit mounts, so does America's overall indebtedness to foreigners, which now totals about $3 trillion. That would be less troubling if the money streaming in from overseas were helping to finance a boom in productive assets such as factories and machinery.

But to the contrary, economic data show historic highs in the proportion of U.S. spending on consumption and....

[Willie Green]

Related thread: Foreigners own half US debt, tipping point unclear

"Think what you do when you run into debt;
you give another power over your liberty."

-- Benjamin Franklin (1706 - 1790)

[Kay]

Remember that book by Michael Crichton -- was it called "Rising Sun"? Detailing how the Japanese owned so much U.S. land and that we were in danger. In that case, I do believe that the Japanese lost their investment shirts and it added to their recession.

Not to say that debt is good. Some countries are known for their frugal habits but remain in economic stagnation -- while other countries spend beyond their limits and enjoy economic growth. Doesn't mean that the "tsunami" isn't out there someplace. Must be a balance somewhere.

[MEG33]

http://www.freerepublic.com/focus/f-news/1350998/posts
Pace of US economic growth bolstered by stronger exports
AFP ^ | 2/25/2005

[Nuzcruizer]

Trade deficit does not mean trade DEBT. We export goods to sell. We buy goods from abroad with the SURPLUS money we make on both the goods we export and sell at home.

[baseball_fan]

"the Japanese lost their investment shirts and it added to their recession."

This time they own the mortgage to your home which they bought using money from U.S. consumers piling up debt on their credit cards for purchasing non-productive items. Fool me once...

There may be a faster way to slavery, but it's hard to think of one.