Despite record government and foreign trade deficits, America has not suffered severe consequences because foreign investors continue to pump money in. What if this market softens?
But a rash of new data, including Treasury Department figures released yesterday showing a net sell-off by foreigners of U.S. bonds in August, has stoked debate over whether overseas investors — private individuals, institutions and government central banks — are growing dangerously bearish on the U.S. economy.
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In August, foreign private investors actually sold $4.4 billion more in Treasury bonds and notes than they bought that month, the Treasury Department said yesterday — the first time in a year that net foreign purchases were negative. That followed a 20 percent decline in July that shrunk net foreign purchases to $18.3 billion.
Bond purchases by foreign central banks also dropped sharply in July, falling 76 percent, to $4.1 billion. A rebound in August brought them back to $19.1 billion. The recovery was timely: Without it, the dollar may have taken a serious hit, said Ashraf Laidi, chief currency analyst at MG Financial Group in New York, who headlined yesterday’s client newsletter, “Foreign Central Banks Save Dollar From Disaster.”
Foreign purchases of stocks are off as well, going from net purchases of $9.7 billion in July to a net sell-off of $2.1 billion in August. Over the past 12 months, private foreign investors have purchased a net of $17 billion in U.S. stocks, compared with $30 billion in the 12 months before that.
Higher interest rates, a falling dollar–these economic pitfalls loom on the horizon if short-term bump becomes a long-term trend.