Asia Times writes about the Impact of Declining US Capital Inflows. Due to the status of the dollar as the world’s reserve currency, Americans have enjoyed decades of consumption at the expense of the rest of the world. They export, we import. They save, we spend. In return, we send them dollars that Al and his cronies at the Fed create with their confetti machines. And what do foreigners do with these dollars? They turn around and invest them back into US securities, forming a capital inflow that offsets the current account deficit. They are also kind enough to fund a big chunk of our Federal deficit through their purchase of Treasury securities. But htis process seems to be gradually slowing. Purchases of US Treasuries have fallen. So called “Agency Debt”, securities backed by home mortgages but (allegedly) guaranteed by the US Treasury are also being bought in smaller quantity. If this trend continues the dollar must suffer a depriciation.
