[Marxism] China, Japan, & the Dollar

Yoshie Furuhashi furuhashi.1 at osu.edu
Wed Mar 31 00:39:46 MST 2004

What's China's share of all government purchases of U.S. assets?

*****   A trade deficit must be financed by net borrowing from the 
rest of the world. The United States was effectively spending about 
5% more than it was producing last year, but cannot continue to 
borrow at such a high rate indefinitely. Worse yet, the trade deficit 
is growing each year as a share of GDP. The recent decline in the 
value of the dollar -- which has fallen by 11.5% since February 2002, 
primarily against the Euro -- indicates that foreign lenders are less 
willing to supply new credit.

If the dollar were being supported by demand from investors who find 
the U.S. market attractive, then steady growth in capital inflows 
from private investors to finance rising deficits would likely occur. 
However, private inflows have fallen in the last two years. Instead, 
foreign governments have been intervening in foreign exchange markets 
by purchasing a rapidly growing volume of U.S. government assets 
(shown as foreign government assets in the United States in the 
figure below). These inflows reached $208 billion in 2003, or 38.4% 
of total capital inflows. Official government inflows were 50% of the 
total in the fourth quarter of 2003.

Asian governments made 93% of all government purchases of U.S. assets 
in 2003. Other governments were not intervening significantly in 
foreign exchange markets because they expected the dollar to fall and 
did not want to make money-losing investments. Asian governments, 
especially Japan and China, are willing to absorb these risks in 
order to support their exports to the United States1.

("Foreign Government Intervention Keeps the Value of the Dollar 
Artificially High," March 22, 2004, 

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