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Old 09-21-2006, 01:14 AM
SeC SeC is offline
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Join Date: Nov 2005
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Default Does this mean the end is near?


Does this mean the end is near?

The following excerpt is from the Daily Pfennig:
http://www.dailypfennig.com/currentIssue.aspx?date=9/19/2006

Reposted of Weho Dave

Quote:
Ok... Where have all the flowers gone? Where has all the funding for the U.S. current Account Deficit gone? The Net Foreign Security Purchases (NFSP) which need to be around $70-75 Billion each month to finance the Deficit, only amounted to $32.9 Billion in July... That's right less than 1/2 of the amount needed!

And how do I Know what the amount needed to finance the deficit is? Well, Ollie, The 2nd QTR Current Account Deficit printed yesterday... And hold onto your shorts... The Deficit widened to a new record of $ 218.4 Billion! So... Simply divide that number by 3 (months in a quarter), and that equals $72.8 Billion per month! And we only attracted $32.9 Billion? Uh-Oh! I know, we really have to wait until next month to see the August number for NFPS to see if this under funded position continues. But this can't be good...

And the thing to think about here is the fact that there was a complete collapse in the purchasing of U.S. Debt issues (Treasuries and Corporate bonds) which leads us to look for equity purchases to make up the difference, right? Well, if you've all been paying attention, each month I've been telling you that Foreign Investors have shied away from equity investments... So, I don't know if you can look for equities to make up the difference here....

I know I've been through this more times than you can shake a stick, but it is always worth going through once more! Historically, a country has to either raise rates significantly to attract foreign investment to finance their deficit, or they have to provide a discounted clearing mechanism for the purchases... That clearing mechanism is the dollar...

As I interpret this, for the last quarter, the U.S. was unable to sell enough treasuries on the open market to cover what was spent in excess of revenue. I don't recall this ever happening before. Are the Chinese finally carrying out their threat to stop buying treasuries and perhaps buy PMs or other assets? This makes me think something big is about to happen!

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