Tuesday, February 15, 2005

The TIC (Treasury International Capital) data for December is in, and it looks like another month -- and another year -- of massive capital flows into the United States.
Net foreign purchases of both domestic and foreign long-term securities from U.S. residents were $61.3 billion in December compared with $89.3 billion in November. Net foreign purchases of long-term securities were $821.8 billion in 2004 as compared to $683.6 billion during 2003.
The October scare, in which long-term flows totaled a mere $46.9bn, seems like a distant memory now. For the fourth quarter, the US trade balance (SA) hit -$171.8bn. The NSA figures are probably a few billion more in the hole since the goods trade balance (NSA) for 2004:IV stands at -$186.0bn and the US routinely runs about a $4bn services surplus every month. Nonetheless, long-term capital flows (NSA) into the US over the same period totaled $197.5bn and thus easily covered the trade deficit.

Foreigners have dramatically shifted their investments as the year worn on. Of the $82.9bn in long-term securities purchased in December, a mere $8.4bn, or 10.1%, went into treasuries. On the year, foreigners purchased $356.7bn in treasuries with 70% of that in the first half of 2004.

Of late, foreign capital and foreign central banks have hungered for US corporate and agency bonds instead. For the year they bought $300.8bn of the former and $232.7bn of the later. This second figure is particularly remarkable, 51% higher than 2003. As 2004 ended, the agency bond purchases became a torrent, with each month surpassing $20bn purchased and with 33% of the total coming in that last quarter.

As long as the US has a housing bubble to sell to foreign capital and central bankers, these gargantuan trade deficit can be financed 'till the cows come home. But when they finally do come home, I pity that house.

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