U.S. Balance of Payments and The Dollar
February 17, 2009
The broadest aggregate of U.S. capital movements compiled by the Treasury Department showed a net $74.0 billion inflow in December, 85% greater than that month’s goods and services trade deficit of $39.9 billion. The Treasury so-called TIC figures exclude direct investment and thus are less comprehensive than data compiled by the Commerce Department, which will be released in the middle of next month. But this drawback in content is counterbalanced by advantages of timeliness.
TheTreasury reports two other capital flow aggregates, each of which omit short-term movements. The narrowest definition, which also excludes swaps, had a net inflow of $34.8 billion, not quite enough to cover the trade deficit, while the other definition, which includes swaps, was associated with an even smaller net inflow of $24.4 billion in December. The dollar sputtered late in 2008, declining similarly between end-October and end-year by 8.7% against the euro and 8.6% against the yen. This soft performance suggests that the dollar is more closely correlated with U.S. long-term capital flows than with the net movement of all capital flows. As in October and November, foreigners were net sellers of the stricken U.S. agency bond market. However, net purchases in December of $41.0 billion of corporate bonds, $15.0 billion of Treasuries, and even $3.8 billion of equities more than offset the $37.5 billion of net agency bond sales.
All figures in the following table are expressed at a monthly rate in billions of dollars. In ascending order, the three definitions of net capital flows run from least to most inclusive.
| 2006 | 2007 | 2008 | Nov-Dec’08 | |
| Trade Gap | -62.8 | -58.4 | -56.4 | -40.8 |
| Capital #1 | +74.4 | +64.7 | +42.8 | +4.6 |
| Def’n #2 | +59.8 | +45.1 | +26.5 | -6.6 |
| Def’n #3 | +88.5 | +51.4 | +49.8 | +67.7 |
Copyright 2009 Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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