Friday, November 19, 2004

Raw Data

From today's Financial Times:
...Within the US political debate, the administration often paints the current account deficit as a success story. The refrain is that the US has an excess of investment opportunities which foreigners want to use. That was true until 2000, when investment as a share of US GDP was growing. But since then the share has fallen and it does not explain the growing current account deficit. Rather, as the US government began to borrow heavily, national savings fell even faster, causing the current account to deteriorate further.

...Net capital inflows in the year to September, at $657bn, exceeded the $445bn trade deficit over the same period. But Ashraf Laidi, currency analyst at MG Financial Group in New York, points out that foreign demand for US assets has been falling. A year ago, the US was importing twice as much capital a month as it needed to cover the trade deficit. The gap has narrowed: the $63.4bn of capital imported in September compared with the $51.6bn trade deficit in that month.

Below you can compare US foreign debt levels to those of other countries during previous currency crises. It doesn't appear to me that we are near a catastrophic collapse in confidence in the dollar - the US is no Argentina, so perhaps the Sweden data point is most appropriate. That gives us a decade to get our finances in order. (On the other hand FT indicates the Norway point from 1977 - if that is a good comparator we will definitely see a crisis while W is still President.)

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