Monday, August 25, 2008

United States Balance Sheet / Dependence on Foreign Capital

Ben Bittrolff points us to an interesting take on the fragility of the current International Financial system via Bloomberg:

"A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank.

"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' Yu said in e-mailed answers to questions yesterday. "If it is not the end of the world, it is the end of the current international financial system."

"The Chinese are getting a little feisty as their losses continue to mount.

"China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack."
Lets take a look at just how large the U.S. dependence on foreign investors is:
Liabilities and Equity of US Economy
Source: Federal Reserve

1 comment:

  1. I must say I'm a bit surprised by these numbers. But things to focus on are government debt, and the fact that 45% of it is foreign owned. If foreigners stopped buying treasuries, the government wouldn't be able to deficit spend anymore. This would cause severe damage to the US economy and social structure.

    It seems like corporate America isn't dependent on foreign money, but the government is. Still quite a strong dependency.