Global Imbalances: Capital and Its Complements
Morning Coffee Videocast: PAYGO

Morning Coffee Videocast: The Inflow of Capital to the United States

In which I drink my morning coffee, hog Google's bandwidth, and muse on the many reasons contributing to the massive inflow of capital from abroad into the United States:

The Inflow of Capital: Brad DeLong 6 min 11 sec - Jun 16, 2006:

Brad DeLong's Morning Coffee. Capital is flowing into the United States for a number of reasons: (i) people think that the complementarity between capital and technology makes investments in the U.S. highly profitable; (ii) foreigners think that U.S.-located assets would be a wonderful thing to have in the event of "political instability" in their home countries; (iii) foreign governments think an undervalued currency and huge exports are a wonderful thing to have to avoid "political instability" by maintaining full employment; (iv) foreigners are overoptimistic about investments in the U.S.; (v) America's budget deficit means that we are printing lots of Treasury bonds which must be sold to somebody; (vi) the Federal Reserve's low-interest rate policy (which I don't think was a mistake) pushed up housing prices, made Americans feel rich, and so they looked around for people to borrow from to turn their home equity into liquid cash--and foreigners are a convenient source of funds.

I'm worried because I think a big part of the story is reason (iv).

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