Brad Setser finds that, first, sectoral imbalance in the United States shifted from the government sector to the household sector from 2004 to 2007; second, the available supply of Treasuries failed to grow in line with the enormous increase in central bank reserves, which incentivized more complex forms of financial engineering; third, after 2006, central bank flows fail to cleanly register in the U.S. data; fourth, the growth in private flows into the United States that coincided with record official reserve growth reflected the increasingly complex chains of financial intermediation needed to fund the U.S. deficit; and fifth and finally, some of the “missing” central bank flows-the gap between the growth in dollar reserves implied by the IMF’s data and the visible inflow into Treasuries and Agencies-likely was lent to European banks, both directly and indirectly, through the cross-currency swap market.
CITATION STYLE
Setser, B. (2019). Capital Flows into the United States Ahead of the Great North Atlantic Financial Crisis. In The 2008 Global Financial Crisis in Retrospect: Causes of the Crisis and National Regulatory Responses (pp. 87–109). Springer International Publishing. https://doi.org/10.1007/978-3-030-12395-6_6
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