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Bond market:

World avoids US private debt

Fed Flow of Funds Table F.107, US$ billions (annual flows) to Q2 2009

The flight to safer investments, which started with the Crash of 2008, has accelerated as the consequences of economic policies of the Obama administration have become evident.

There has been a net swing away from certain classes of private debt on the order of USD 1.5 trillion, between 2006 and Q2 2009. This money has gone into US Treasury securities, driving rates to almost zero.

Government spending:

US fiscal deficit soars six-fold

Obama administration falls off the cliff

This “Obama Deficit” is about six times the fiscal deficit for the year 2003 and at the highest level in American history.

The Federal Reserve Flow of Funds accounts for Q2 2009, estimates the US fiscal deficit (on an annual basis) at $1,294.9 billion.

Uncontrolled spending by the US government and the lack of any clear plan as how these outlays will eventually be financed has resulted in the world fleeing dollars.

Foreign trade:

Falling US dollars and exports

Dollar falls after nine-eleven ...

When the US fiscal deficit grows rapidly and Americans are reluctant to save, more dollars in foreign hands are needed to absorb the necessary issuance of government bonds. Should the trade deficit begin to shrink, foreigners will have less dollars to finance the United States. The combination of deficit spending, low domestic saving, and a slowing in the growth of the trade deficit makes inflation more likely.

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2010-08-13 13:03