1 ° Understand the graph data
The analysis of financial flows summarizes capital inflows (A), capital outflows (B), and their balance (Net financial investment = AB) providing financial coverage of the balance of payments and transfer deficit. we have included in this second graph.
2 ° Analysis of the data of the graph
The analysis of capital flows does not change the remarks we made earlier: since 2007, the financial coverage of the balance of payments deficit has stalled. Even though the 2009 results are “better”, the ordinary formula for protecting the US currency since 1970 is in crisis.
The examination of financial flows leads to several observations
a) From 2007 to 2008, the contraction in the volume of financial flows is the cause of the deterioration of the financial coverage of the US balance of payments. The financial crisis is causing a greater disruption of financial flows than of the real economy. Hence a dissociation of the balance of payments deficit and its financial coverage threatening the dollar.
b) Quarter 1 and 2 of 2009 are fundamentally changing the financial picture. There is no longer just a contraction of inflows and outflows, but the liquidation of accumulated capital by sales or repatriations. Americans liquidate their assets abroad and foreigners their assets in the US. The coverage of the balance of payments deficit is therefore ensured by the fact that the liquidation of US assets abroad is greater than the liquidation of foreign assets in the US.
As such, the 2009 Q3 and Q4 2009 quarters represent a clear improvement. The inflow and outflow return to positive – which seems to indicate a return to normal after a historic low. The recession in financial trade will have been shorter than the economic recession. The reversal of the flows in T-1 and T-2 2009 simply illustrates the violence of the economic crisis that has led to a vast movement of withdrawal into financial markets.
Components of net acquisitions of financial assets (inflow into the USA)
Net acquisitions of financial assets synthesize transactions – purchases and sales – of miscellaneous financial products.
From 2005 to 2007, the attractiveness of the financial market is measured by US asset purchases, which are almost all positive. The US financial market plays its full role in covering the balance of payments deficit. In 2007, the financial crisis is announced by the negative evolution of interbank assets (- $ 153bn) resulting from the repatriation or sale of assets of foreign banks in the US.
The weakening of the financial coverage results in 2008 and 2009 of more complex movements
In 2008, these are the Repurchase agreement (security RPS = -524 Md of), followed by the sales of the assets of the Agencies and GSE (-218 Bn of $), loans to the American companies (-60 Bd of $) and open market paper (- $ 45 billion), which leads to the deterioration of net acquisitions of assets. US financial hedging was supported by positive acquisitions of FDI, treasury bills, and renewed asset purchases between banks. The net acquisition of assets remains at $ 614 billion.
The year 2009 distinguishes by the relapse of purchases of interbank assets (- $ 323 billion), agency securities and GSE ($ -130 billion) and bond sales of US companies (- $ 99 billion) from $). The decline in the volume of asset purchases plays a less compensating role, net acquisitions fall to $ 243 billion.
It should be noted, however, that the quarterly developments suggest an improvement in the situation. After a very catastrophic T-1, 2009 and a still very worrying T-2 2009, the liquidation of assets fell sharply in 2009 T-3 and T-4 when the purchases returned to a satisfactory level (T-4 2009) or very satisfactory (T-3 2009).
Globally bad, the second half of 2009 points to an improvement in the financial coverage of the US balance of payments deficit. Is the dollar in a really better situation?