UST Ponzi

Floyd Norris reports:

The government said this week that net purchases of [long term] securities fell to $412.5 billion in 2008, less than half the 2007 level and the lowest annual total since 1999, when the federal government was running a budget surplus.

Money did come in, but it was diverted into the safest investment around, albeit one with almost no expectation of profit, Treasury bills. Overseas investors increased their holdings of those securities by $456 billion, an unprecedented flow.

Relying on foreign investors to fund our deficit is not unlike running a Ponzi scheme. It’s fine as long as new money comes in, but when the money flow stops, we’re effed. As the chart below shows, we’re now addicted to foreigners’ short term financing.