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Treasury Reports World Is Dumping U.S. Investments En Masse Since July

Oct. 17, 2007 (EIRNS)—The U.S. Treasury's Oct. 16 report of net investments into/out of U.S. securities in August (Treasury International Capital Statistics, or TICS) was a shock that opened another view of the financial crash underway. Since July, foreign investors both private and "official" (central banks) have been massively dumping all dollar investments except for the short-term 30-, 60-, and 180-day Treasury Bills to which they fled for safety when the credit crisis hit. This, after years in which $100 billion/month (inflows) into U.S. investments from the rest of the world were typical. The reason is simple: The United States mortgage-based bubble was where the junk, sub-prime, high-interest action was for banks and funds worldwide, blowing that bubble to $20 trillion proportions until it collapsed — and everybody had to dump the toxic crap. An accelerating dollar crash and banking collapses are the threatened results.

One Royal Bank of Scotland economist, Alan Ruskin, called the Oct. 16 report "A truly stunning TICS number, the likes of which I have never seen." The Treasury reported that there was a huge net outflow of $163 billion from U.S. securities in August. In July, there had been a fall to $58 billion net inflow — just enough to cover the trade deficit for that month — and that, entirely the result of a rush for the safety of T-bills as mortgage-backed securities, leveraged buy-out loans, and other junk securities tanked. In August, U.S. securities being dumped across the board, overwhelmed even the continuing flight into T-bills, which was a net $33 billion. Net foreign private flows, overall were a negative $141.9 billion, and net foreign official (central bank) flows were a negative $21.1 billion.

Net purchase of long-term U.S. securities were minus $69.3 billion, and every category was dumped—Treasury bonds; bonds of Fannie Mae, Freddie Mac and the other government mortgage enterprises; stocks; corporate bonds; real estate trusts.

The shocking August report is not an "aberration" just because the credit crunch intensified in that month; nor is it a "new trend"; but a marker of collapse of the entire dollar-based international monetary system, unless it is replaced rapidly by actions of governments to put "firewalls" of protection around their real economies, and create new credit and monetary agreements for investments into productive projects.