Where Did All the TRILLIONS Go

Thursday, April 07, 2005

According to the US Treasury's data, the total external debt of the world's biggest economy has grown from 6,570,168 (six million fivehundred seventy thousand one hundred and sixty eight) million to 8,360,166 (eight million three hundred sixty thousand one hundred sixty six) million dollars in the eighteen months leading to Dec 31, 2004. This amounts to almost 100 billion dollars per month. The US has been sinking deeper and faster into debt than ever before. All the presidents before George W. Bush did not burden the country with so much debt in so little time, not even Ronald ("deficits don't matter") Reagan managed to run up such a tab for his wars on the poor central American nations.
Every rational mind will have a problem calling this consumption on the back of creditors economic growth. It also contradicts the widely published belief that the US gets indebted at a rate of "only" 1.7 billion dollars per day, as this would be only roughly half of the effective rate of debt growth.
The big question is where do these enormous mountains of money go? Not even the Pentagon spends that much according to official budget figures. The indebted American consumer does not feel it in his pockets either although this effectively means a per capita borrowing of 400 dollars per month, every month.

The redistribution of these borrowings can only be measured on the basis of the flow of funds which one can access by clicking on the headline of this posting.
I just want to point out the biggest holders of US treasuries: In the preceding year, Japan's holdings rose 20 percent to 702 billion dollars by the end of January 2005, making it the biggest official holder of US debts. Second in place is China, whose holdiings of dollar denominated paper rose almost 25 percent to 194 billion. Third in the race is the United Kingdom, whose holdings swelled an astonishing 71 percent to 163 billion dollars. As if Tony Blair had no more pressing problems than to prop up the dollar exchange rate. The big surprise is number four: the Caribbean banking centers, where dollar holdings grew 92 percent to more than 92 billion dollars. This area being the last unregulated offshore havens for money that does not want to leave traces arises suspicions. Is there already a massive capital flight from the US in dimensions we have so far only associated with places like Central America or African dictatorships? Even the OPEC countries hold in comparison a mere 65 billion dollars.
Forecasting a collapse of the dollar in the not too distant future it is only plausible that this really is an expression of massive capital flight by those in the know. And to know only means to have read some history books.
The rise and fall of every empire always followed the same pattern. If we look at the British empire, we see it starting out as a net creditor with a superior currency and the decline was accompanied by a falling currency and a net debtor status. The era of every imperial power never lasted longer than a century, except for the Romans.
If one draws the same time measure on the US, we see they were a net creditor in the first 80 years of the 20th century and have become a net debtor since then. And while falling into ever more debt the greenback has lost most of its value too.
A few political powers seem to have recognized this already. Isn't it funny it is those countries who opposed Bush's war agenda in the first place!? France and India have both reduced their dollar exposure and hold on or even build up their gold reserves. History books will tell you that France repatriated its gold reserves from Fort Knox back home in 1973 already. The last audit of the world's gold reserves at Fort Knox took place in 1964. I hope future will not lead us to look into empty vaults there. This might be a brash assumption. But the US already had to ask congress for permission to buy silver on the open market only to continue its program of silver memorial coins. That's what I call being short of change.
UPDATE: Take the flow of funds numbers reported above with caution. On May 17 the US Treasury came out with altered figures without an explanation. Read this post RED ALERT - Don't trust the TIC data.

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