Tuesday, December 14, 2004

The United States: Facing an Impossible Trinity

Posted a link to this article in the Economics Log just a few minutes ago. Upon further reflection I think this is worthy of position on the front page. Here's a quote from the article: The following statistics illustrate the degree to which foreign capital flows have supported US markets. During the September quarter, foreigners absorbed the equivalent of an extraordinary 97.7% of all Treasury issuance, an even more extraordinary 99.9% of all agency issuance, and 63% of all corporate bond issuance. Combined foreign purchases of Treasuries and agencies came in at an annual rate of $369.3 billion, which equaled almost 99% of total Treasury and agency issuance during the third quarter. Saw a wire story today that quoted a senior Australian Treasury official. He said that the US is facing an "impossible trinity". Martin Parkinson, Deputy secretary and head of economics, told a conference that the problems facing the US would limit global economic growth: It (the US) is fighting a global war on terrorism while becoming dramatically more dependent on foreign financial support at a time when the developed world is ageing. The US will have to take on more of the burden itself, increasing the risk of a "disruptive correction". A disruptive correction..... Doesn't sound good to me......

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