This is not a good sign given their monetary arrangements with no federal fiscal authority to incur the corresponding budget deficits, public and private.
And the unlimited Fed swap lines to the ECB could now be further increasing eurozone foreign currency debt, and funding imports with fresh ‘cheap and easy’ dollar debt.
Euro-zone trade deficit swells in September
Euro-zone trade deficit swells in September (AP) – The euro-zone swung to a trade deficit of 5.6 billion euros ($7.1 billion) in September from a 2.9 billion euro surplus last year. Imports surged 16 %in September from a year ago. Exports grew just 9 percent. The euro-zone trade deficit for the year to date — from January to August — now stands at 29.6 billion euros ($37.52 billion). Euro exports to the United States dropped 5 %from January to August from a year ago, Eurostat said. And exports to the currency area’s biggest customer, Britain, did not grow at all for the first eight months of the year. Imports from Russia climbed by a quarter over the same timeframe. Eurostat revised down its August trade figures, saying total euro-zone exports dropped 3 %during the month from a year ago. It originally reported a first estimate of 2 percent. Imports in August also grew less than expected — at 6 %instead of 7 percent.
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Desire by rest of world to hold euros? Will soon accelerate as Fed puts ceiling on dollar.
so what happens when the deficits mount?…operationally.
Mike, right, as they start spending those ‘borrowed’ dollars on imports.
RSG- the eurozone borrows dollars from the fed and spends them on imports.
Seems to be occurring: witness their trade deficit.
So can we say the Fed is conducting its own “carry trade,” just like the world did with the yen?
why would they do that, intentionally run-up deficits when they think exports will strengthen their economy…plus i thought the us$ borrowing was to fund us$ assets that were already accumulated on eurobank balance sheets.
It’s not in their control. If it is the world’s desire to “net save” in euros, they will end up running a deficit, just as we have run deficits because of the world’s desire to “net save” in dollars. (At least it was their desire until now.)
aside from paulson/bernanke wanting to increase exports to the eurozone to help support the u.s. economy, i find it difficult to imagine the rest of the world wanting to accumulate euros knowing the structural issues of euroland.
7. right, they don’t
if the US lends $ to the eurozone they import by spending those $. no exports and no euros are involved.
Ive looked at the ECB us$ auctions as of today.
Today they did the latest 28-day operation for $52B.
ECB totals:
3 rolling 84-day auctions outstanding: $100B (70+20+10)
28-day: $52B
7-day: $60B
Totals: $212B as of today
This does not include BOE or Swiss NB us$ operations.
Now on another thread I referenced a media summary of a S&P report that identified total required Euro area (incl. England and Swiss) 4Q08 US$ refunding of approx. $200B.
So it looks like the $212B ECB area firms have acquired is more than what was perhaps maximum required for 4Q08 re-fundings. And pile on the swaps to the BOE and SNB that are at least $80B combined that they must be putting in somehow.
It generally does look like they are net increasing US$ borrowings via the US Fed. This has really just developed over the last 60 days or so.
Resp,
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RSG:
They sure had no reservations about loading up on subprime debt and plenty of other toxic assets.
May I be so bold as to suggest that most of the accumulation of euros is done by people who have little understanding of the structural limitations of the Eurozone. I would even add that most central banks don’t understand it or, view it as a minor issue.
Mike, you may be right.