The US has maintained foreign capital inflows to finance its big balance of payments deficit, but any dropoff in investment could end up hurting the economy, a Federal Reserve report said on Thursday.
The report by economists at the Fed indicated the US has been keeping up its share of cross-border capital flows despite a weak US dollar and worries about the strength of the US economy.
Yet they echoed concerns by many private economists about a loss of confidence in the US dollar that could provide a shock to the world's biggest economy and put further pressure on the US currency.
"In recent years, the US deficit has been large enough to absorb the lion's share of surpluses generated abroad," the report said. "Indeed, from 1999 through 2006, the cumulative US borrowing of US$4.4 trillion amounted to some 85 percent of the net external financing provided by countries with surplus saving."
"Despite this heavy borrowing, however, the United States has been the destination for little more than 30 percent of total gross cross-border investments by other countries, a figure that only slightly exceeds the US share of global GDP and is below the US weight in global financial portfolios," it said.
They said that as a result, the US has been able to finance its large current account deficits without requiring foreign investors to shift into more US dollars.
But the Federal Reserve report said it remains unclear whether the trend in global financial markets will continue.
"It might be harder to finance continued large current account deficits on favorable terms if the recent wave of financial globalization were to subside," the report said.
"The United States would then have to attract a larger share of other countries' foreign investments," it said.
The US current account deficit, the broadest measure of trade and investment flows, narrowed in the third quarter to US$178.5 billion.
The balance of payments deficit declined to approximately 5.1 percent of US economic output or GDP during the quarter, marking its lowest level since the first quarter of 2004 and shaving several percentage points off during the second quarter.
A high deficit could lead to a loss of confidence in the US dollar and require higher interest rates for US bonds and other investments.
"The fact that foreign investment in the United States has been outpacing the US current account deficit might appear to support concerns about foreign portfolios growing increasingly lopsided," the report said.
NO HUMAN ERROR: After the incident, the Coast Guard Administration said it would obtain uncrewed aerial vehicles and vessels to boost its detection capacity Authorities would improve border control to prevent unlawful entry into Taiwan’s waters and safeguard national security, the Mainland Affairs Council (MAC) said yesterday after a Chinese man reached the nation’s coast on an inflatable boat, saying he “defected to freedom.” The man was found on a rubber boat when he was about to set foot on Taiwan at the estuary of Houkeng River (後坑溪) near Taiping Borough (太平) in New Taipei City’s Linkou District (林口), authorities said. The Coast Guard Administration’s (CGA) northern branch said it received a report at 6:30am yesterday morning from the New Taipei City Fire Department about a
IN BEIJING’S FAVOR: A China Coast Guard spokesperson said that the Chinese maritime police would continue to carry out law enforcement activities in waters it claims The Philippines withdrew its coast guard vessel from a South China Sea shoal that has recently been at the center of tensions with Beijing. BRP Teresa Magbanua “was compelled to return to port” from Sabina Shoal (Xianbin Shoal, 仙濱暗沙) due to bad weather, depleted supplies and the need to evacuate personnel requiring medical care, the Philippine Coast Guard (PCG) spokesman Jay Tarriela said yesterday in a post on X. The Philippine vessel “will be in tiptop shape to resume her mission” after it has been resupplied and repaired, Philippine Executive Secretary Lucas Bersamin, who heads the nation’s maritime council, said
CHINA POLICY: At the seventh US-EU Dialogue on China, the two sides issued strong support for Taiwan and condemned China’s actions in the South China Sea The US and EU issued a joint statement on Wednesday supporting Taiwan’s international participation, notably omitting the “one China” policy in a departure from previous similar statements, following high-level talks on China and the Indo-Pacific region. The statement also urged China to show restraint in the Taiwan Strait. US Deputy Secretary of State Kurt Campbell and European External Action Service Secretary-General Stefano Sannino cochaired the seventh US-EU Dialogue on China and the sixth US-EU Indo-Pacific Consultations from Monday to Tuesday. Since the Indo-Pacific consultations were launched in 2021, references to the “one China” policy have appeared in every statement apart from the
More than 500 people on Saturday marched in New York in support of Taiwan’s entry to the UN, significantly more people than previous years. The march, coinciding with the ongoing 79th session of the UN General Assembly, comes close on the heels of growing international discourse regarding the meaning of UN Resolution 2758. Resolution 2758, adopted by the UN General Assembly in 1971, recognizes the People’s Republic of China (PRC) as the “only lawful representative of China.” It resulted in the Republic of China (ROC) losing its seat at the UN to the PRC. Taiwan has since been excluded from