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Strategies & Market Trends : Natural Resource Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Roebear who wrote (3852)	11/24/2003 11:19:26 PM
From: Jim Willie CB	Read Replies (3) \| Respond to of 108640

"Impact of declining US capital inflows" By Hussain Khan of Asia Times atimes.com TOKYO - The wide range of declining currency inflows into numerous types of US financial assets makes it almost certain that the dollar, beset by global security concerns, trade-war anxiety and the crushing weight of the twin US current-account and fiscal deficits, is heading for a serious plunge against other currencies. The declining inflows, if they were to continue beyond the current month, would ripple ominously across the globe. A substantially cheaper dollar means serious trouble for the export-led economies that have traditionally depended on the United States as importer of last resort, making their goods more expensive. It is already causing a feeding frenzy in the shark-like world of currency traders, who have the ability to wreck entire economies through currency speculation. The latest US Treasury Department figures, released on Wednesday, show that net capital inflows into the country fell precipitously, from about US$50 billion (42 billion euros) in August to $4.2 billion in September, the lowest since the near-collapse and bailout of the Long Term Capital Management hedge fund rattled markets in 1998. The new data are raising fears that the US may have difficulty funding its current-account deficit, which ran at about $46 billion a month in the first half of the year and is expected to reach $550 billion by year-end. The fiscal deficit reached $374 billion in the fiscal year ended in October, by far the largest in US history, although off-budget expenditures could carry that as high as $450 billion. With crucial foreign investor confidence waning, foreign purchases of US Treasury bonds have fallen to their lowest level on a monthly basis since February. The Treasury report said foreigners bought a net $5.6 billion of treasuries in September, down from $25.1 billion in August. Foreigners engaged in net selling of "agency" debt sold by the quasi-governmental agencies Freddie Mac (Federal Home Loan Mortgage Corp) and Fannie Mae (Federal National Mortgage Association), both of which package and sell domestic home mortgages of various kinds, for the first time since October 1998, getting rid of a net $3.2 billion after buying $8.9 billion the previous month. The lack of interest in bonds was not replaced by buying of equities. Private accounts and central banks sold some $6.3 billion of equities. Japanese buying of US assets remains particularly strong, with some net $20 billion of debt and equity purchases. However, Japanese buying is occurring only because Japan has no alternative to keeping its massive dollar reserves in some form of US assets. These reserves are increasing day by day because of Japan's massive intervention in the currency markets to sell trillions of yen and buy dollars to stem the tide of yen appreciation. Economists noted that the bulk of the selling came from private accounts and hedge funds, not central banks. Favorable US growth differentials now appear sufficient to put only a temporary brake on the dollar's slide, with the focus shifting toward the impact of strong US growth on the country's current-account deficit. Forecasts point to the deficit's reaching 6 percent or even 7 percent of gross domestic product next year. The deficit could narrow if the United States were to grow more slowly than its trading partners, thus dampening consumers' appetites for imported goods. But, ahead of the 2004 US presidential election, with the administration and the US Federal Reserve reluctant to intervene, this seems highly unlikely. Although foreigners have been financing the current-account deficit for more than a decade, the necessity for exorbitant inflows is finally catching up with the United States. The deteriorating trend in net US portfolio inflows suggests a growing reluctance by foreign private investors to shoulder this burden. Currency traders seized on September's sharp deterioration in capital flows, pushing the dollar to a record low against the euro. However, the trend has been clear for months. It is not particularly a pretty sight, and it is not particularly reassuring for the global financial system. (Copyright 2003 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)