Should-Read: Brad Setser: Mapping Capital Flows Into the U.S. Over the Last Thirty Yearss: "There were a couple of years when the net outflow from Asia associated with Asia’s current account surplus was really private...
...A closer look at the numbers though suggests that changes are already afoot. We only have three quarters of data available for 2017, but if you look closely, Asia’s reserve and shadow reserves are clearly rising again. And if you add in the lending of China’s policy banks and one large source of private outflows—Taiwan’s life insurers—the growth of official assets now tracks the current account surplus.... Why does all this matter? Simple: my thesis, more or less, is that it took a rather extraordinary set of circumstances to generate three years of private funding for the U.S. external deficit. And it isn’t clear if those circumstances will persist.... That at least is the lens I use to interpret the dollar’s recent weakness. And it is also the lens I use to interpret Asia’s return to intervention to cap Asian appreciation—and to support Asia’s exports and its trade surplus—in January. There is a bit of pressure in the market, I think, to move some ways back to the “old” flow equilibrium, one where central banks, not private investors, fund much of the United States trade deficit. But it isn’t yet entirely clear if that is a politically acceptable equilibrium in the Trump era...
