Chart Of The Day

Foreigners have virtually stopped buying long-term US Bonds. This is why the Fed has been forced to monetize the debt with printed funny money. Either interest rates will have to rise substantially (causing a deeper depression) or the Fed will continue to run the electronic printing press resulting in rising inflation, not a good choice for Benny & The Fed.-Lou

Foreign Investment in the U.S. – Going Down, Down, Down - The Casey Files - by David Galland & Bud ConradManaging Editor, BIG GOLD from Casey ResearchJuly 28, 2009

Here at Casey Research, we’ve been watching the actions of foreign holders of U.S. dollars as closely as a Las Vegas pit boss watches a card player on a $1 million winning streak. Many of those in the deflation camp largely, or entirely, ignore the potential role these foreign holders may play in the drama now unfolding.

But in fact, foreigners have, over the last decade, been by far the single most important source of buying for U.S. Treasuries.Given the Treasury’s need to flog on the order of $3 trillion worth of its unbacked paper this year just to keep the government’s doors open – and that is a four- or fivefold increase over 2008 – the foreign buyers not only have to show up for the Treasury auctions, they have to show up in droves.In mid-July, the Associated Press reported that “Foreign demand for long-term U.S. financial assets dropped by the largest amount in four months in May, as Japan and Russia trimmed their holdings of Treasury securities . . . foreigners actually sold $19.8 billion more long-term U.S. securities than they purchased in May.

That compared with net purchases of $11.5 billion in April.”Below you see the big picture of all cross-border flows in May as published by the U.S. Treasury. It shows both foreign investment in the U.S. and U.S. investment abroad. It includes Treasuries, agencies, corporate bonds, equities, and short-term instruments like T-bills. Foreigners bought a lot of T-bills when the credit crisis became acute.

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