Euro Area Woes Sustain U.S. Bond Prices
Posted By John Schroy On 8th February 2006 @ 11:55 In Agencies, Mortgages, Corporate Bonds, Foreign Investors | Comments Disabled
Recent statistics released by the Organization for Economic Cooperation and Development”>OECD on 07-Feb-2006 show that this trend is expected to continue through 2007:
 US Unemployment Compared to Europe
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The Wall Street Journal, in an editorial on 08-Feb-2006 (”The European Disease”), citing the same
GDP growth per capita for Germany, France, and Italy is falling, relative to the U.S., and that Jean-Phillippe Cotis, chief economist at the
As mentioned in the article, “[1] Is the U.S. Trade Deficit Sustainable?“, countries with high unemployment and low wages, relative to the U.S., are motivated by neo-mercantilist impulses to boost exports and restrain imports, attempting to build foreign exchange reserves; and this is precisely what the Euro Area has been doing for some time.
(See: “[2] The Trade Deficit and Dollarization“).
Most European countries run a trade surplus with the U.S., and this adds to the U.S. trade deficit and the amount of dollars held by foreigners.
(See: [3] Flow of Funds Table F107.)
A heavy burden of socialism and trade unionism weighs upon Old Europe, keeping unemployment high, stimulating protectionism.
Now, relative economic misery in Europe encourages the building of trade surpluses, putting more dollars in the hands of foreigners who prefer fixed income securities over equities,, which boosts prices on the U.S. bond market.
(See: “[4] Trade Deficits Have Depressed Bond Yields for 20 Years“.)
Q.E.D.
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URL to article: http://capital-flow-analysis.com/capital-flow-watch/euro-area-woes-sustain-us-bond-prices.html
URLs in this post:
[1] Is the U.S. Trade Deficit Sustainable?: http://capital-flow-analysis.info/capital-flow-watch/archives/64
[2] The Trade Deficit and Dollarization: http://capital-flow-analysis.info/capital-flow-watch/archives/35
[3] Flow of Funds Table F107: http://capital-flow-analysis.info/flow-of-funds/F107.htm
[4] Trade Deficits Have Depressed Bond Yields for 20 Years: http://capital-flow-analysis.info/capital-flow-watch/archives/46
[5] dollarization: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=dollarization
[6] euro: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=euro
[7] europe: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=europe
[8] mercantilism: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=mercantilism
[9] oecd: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=oecd
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