During Q3 2004 the excess of U.S. imports over exports (the “trade deficit”) delivered a net $616.7 billion (annual rate) to the Rest of the World that, in turn, used $370.9 billion of these funds to buy U.S. Corporate Bonds, mainly $390.3 billion in bonds issued on Asset Backed Securities.

Issuers of Asset Backed Securities, in turn, used most of these funds to buy Mortgages, mostly residential mortgages.

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The principal flows in asset-backed securities in Q2 2004 were to finance real estate ($255.7 billion, net, in home mortgages and $64.6 billion, net, in commercial mortgages).

The principal source of this funding was the issuance of corporate bonds, mainly to foreign investors and life insurance pension funds. In other words, the trade deficit and long-term pension savings were the principal sources of this type of financing for the U.S. real estate market.

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In the second quarter of 2004, the primary source of funds for American households came from borrowing through home mortgages.

Part of this money went to buy real estate, but a large portion went into consumer durables and household spending. There was a 49.9% increase in spending on residential real estate and a 14.1% increase in outlays for consumer durables, as compared to the year 2000.

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