In These New Times

Net purchases of US Treasury securities from abroad doubled between February and March, from $48 billion to $109 billion. About half the total $45 billion came from London, that is, international banks; another half came from Asia ($45 billion), with China ($19 billion) and Japan ($15 billion) the largest contributors. The geographic breakdown suggests that in addition to the $50 billion a month in carry-trade financing of the deficit by international banks, reserve accumulation by Asian countries pushed another $50 billion or so into US coffers.

Chinese inflation driven by currency inflows temporarily helped the US Treasury market, but by one means or another that source of support will come to an end. The US will continue to remain dependent on the global banking system to support the Treasury market, which now appears to be shifting its portfolio away from Europe to the US. It’s an ill wind that blows nobody good, but it is an ill wind, and it is strange to imagine American prosperity founded upon European failure.