As recently as the mid-1980s, the United States was a net creditor nation. As of the end of 2005, however, the US was in the hole to others to the tune of more than $5.8 trillion. And this numbing figure continues to expand at an alarming rate! This is one of the horrifying revelations contained in the Federal Reserve's latest flow-of-funds data, released late yesterday morning.
Everyone is aware of how important foreign investment flows have been to the well-being of the US financial markets. In turn, this provides an important insight as to how critical a consideration the dollar's exchange-rate value has been and continues to be in the overall process. What many people may not realize, though, is the enormity of some of the numbers involved.
And as readers will soon see, the enormity and relationship of some of the numbers help explain phenomena like Alan Greenspan's interest-rate "conundrum." I suspect Greenspan knew full well what the cause-and-effect relationships causing the infamous conundrum are. But Uncle Al, being a far more accomplished politician than central banker, wasn't telling!
Yesterday, the Federal Reserved released the latest edition of its "Z.1" publication," "Flow of Funds Accounts of the United States." The most recent data are through the quarter ended 12/31/05, but this certainly is current enough for my big-picture purposes here. A caution, though: you might think twice about proceeding on an empty stomach! Continue to Gillespie Research for the balance of the essay: http://www.gillespieresearch.com/cgi-bin/s/article/id=784.