June 8, 2023

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The “magic” of US debt is fading

What is the strength of the dollar? Why are changes in their exchange value so important to the United States?

Of course, there are many wise men who interpret this mysterious “riddle”. But this editorial appeared in Teleborsasigned by the always meticulous Guido Salerno Aletta, He puts the essential question in the center in a few lines: the United States is the most indebted country in the world, they import capital (and export war), and a few waves of inflation help them improve their debt position, reducing the value of what they theoretically have to pay “lenders” ( rest of the world).

So it is easy to understand the importance and direction in which many recent agreements are moving between countries that are not quite similar – in terms of economic system, political system, religion, and more – to exchange goods with each other without going through the “interested”. Brokerage “American currency.

It is the only one in the world that has, in the past 80 years, covered the various possible functions of a currency – a measure of value, reserve and international means of payment, as well as exchange within a country – without having (since August 1971) no relation to a recognizable “fundamental” ( gold or something).

In short, the currency is “printed” at the discretion of the Federal Reserve (only one power National), but with real effects on swaps and debt the whole planet.

The list of these agreements removing dollars from the world is very long now. They range from the dreadful agreement between China and Saudi Arabia to pay for Riyadh’s oil in yuan (which is the mainstay of the “petrodollars,” which have dominated financial markets since the 1970s) to the very recent period. swear to currency swaps between China and Brazil (By the way, an official BRICS member).

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Indeed, with the recent wave of inflation, which was also emphasized by the war in Ukraine, the United States was again able to partially “improve” its net financial position, reducing its liabilities by about $ 2 trillion.

And this without the need to adopt any European-style “austerity” policy. It was enough to change the value of the dollar on international markets.

If there are no changes in valuations resulting from inflation and the dollar exchange rate Salerno Aletta notes America’s net financial position could have deteriorated by another $677 billion. “

Convenient, right? Very convenient, but unbearable for international “creditors”, who see themselves paying back much less than they lent to Washington.

The creditors now around China (and India to a lesser extent) are creating a web of trade relations on par, without too many monetary tricks (at least for the time being of course…).

In short, it could be one of the last times this “American magic” will succeed at least in part. Then he will have to work, “instead of sitting on the sofa” …


US Foreign Debt: All that glitters is not always gold

Guido Salerno Aletta Teleborsa Agency *

I am an employeeRecently published by BEA (Bureau of Economic Analysis) Closing data for 2022, which show that The net international financial center of the United States Significantly improved Compared to the previous year, liabilities decreased from $18,124 billion to just $16,117.

From this balance, which is a summary figure, a clear reversal in trend emerges compared to the continuous deterioration recorded in recent years: in fact, it rose from $1.279 billion in 2007, recorded on the eve of the great financial crisis, to -18124 billion dollars. in 2021. Net foreign liabilities have actually increased tenfold.

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It is necessary to carefully analyze the factors that led to this improvement: in fact, everything depends on monetary and currency factors.

During 2022, the value of US assets and liabilities to the rest of the world varied a lot compared to the previous year due toHigh inflation Which is also registered in the USA andThe exchange rate between the dollar and other currenciesFirst strengthened, then weakened.

L’The exchange rate had a strong impact during the yeargiven that in the first months of 2022 there was a deterioration in the balance, which then improved with the gradual weakening of the dollar against other currencies.

The explanation is this: an American who owns assets or flaunts credits abroad must match the value of their currency, the dollar: so, for example, if the euro depreciates, the dollar value of an asset or credit denominated in euro decreases accordingly.

L’Inflation has a similar effectcausing the market value to be inflated at nominal terms.

If we analyze lysis US net fiscal debt has improved, which increased from -18,124 billion dollars in 2021 to -16,117 billion dollars in 2022, it can be seen that the overall improvement in the balance, equivalent to 2,007 billion dollars, was determined by the combination of a positive effect of at least 2,684 billion dollars. It is caused by the trend of inflation and components of the currency and a negative impact of 677 billion on the financial account balance.

Were it not for changes in valuations resulting from inflation and the dollar’s exchange rate, America’s net financial position would have deteriorated by another $677 billion.

net derivatives US foreign asset claims It increased from $33.078 billion at the end of 2021 to $29,136 billion at the end of 2022, thus decreasing by $3,942 billion: this is due to reductions of $3,501 billion due to inflation, $1.261 billion due to the dollar exchange rate, and $98 billion. Due to items not attributed to him, against a positive contribution of 919 billion from the financial account.

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Again net derivatives, often pounds US obligations to the rest of the world From $51,222 billion to $45,323 billion, decreasing by $5,899 billion, due to decreases of $7,622 billion due to inflation, $106 billion due to the dollar exchange rate, and increases of $313 billion due to items Untraceable and 1,516 billion. from the financial account.

In practice, except for price changes, exchange rate trends and non-attributable items, The United States increased its foreign assets by $919 billion External liabilities increased by $1,516 billion, with another $597 billion deteriorating.

Foreign investment in US debt instruments increased by a total of $918 billion, including $413 billion in long-term federal securities, Treasury bonds and securities. Conversely, investments in short-term federal securities and Treasury bills and certificates fell by $37 billion.

Two considerations and a conclusion:

  • US confirmed Major borrowers of net capital in the international market
  • The value of US foreign liabilities decreased mainly becauseeconomic inflation:-7.622 billion;
  • It is well known that inflation is in favor of debtors.

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