U.S. Capital Inflows
December 15, 2008
Capital inflow financing of the U.S. current account deficit increased sharply in quantitative terms during September-October but weakened significantly in a qualitative sense. The broadest measure of net inflows reported by the Treasury Department totaled $286.3 billion in October, up from $142.6 billion in September. In contrast, there were net sales of $4.0 billion per month in July-August and net inflows of $52.7 billion per month last year and $88.5 billion per month in 2006.
Net short-term inflows — both the buying of short-term securities and higher bank-reported liabilities to foreigners — averaged $195.2 bn September-October versus net monthly outflows of $6.9 billion in July-August and net inflows of $6.3 billion per month in 2007. Reflecting capital flight, net buying of Treasury bills jumped to $119.2 billion per month in September-October from $17.9 billion per month in the prior two months and $4.1 billion per month in 2007.
Long-term portfolio capital inflows shrunk to just $1.5 billion in October from $32.8 billion per month in the third quarter, $66.0 billion per month in 2007 and $74.4 billion per month in 2006. When stock swaps are included, a somewhat broader measure of long-term capital movements showed a net outflow in October of $13.3 billion versus an inflow of $19.2 billion per month in 3Q08 and monthly average inflows of $46.4 billion in 2007 and $88.5 billion in 2006. Long-term capital movements are more stable than short-term flows and thus provide more enduring support for a currency than do short-term capital inflows.
The dollar’s support in October was virtually all of a short-term nature. Although substantial, the dollar is on the defensive again less than two months later. Meanwhile, the U.S. deficit in goods and services trade has been comparatively steady, averaging $60.8 billion per month in 2006, $58.4 billion per month in 2007, $59.1 billion per month over the first ten months of 2008, and $58.5 billion per month since the middle of this year.
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