As bad as trade deficits or gov't spending deficits might be, at least in the past these have resulted in a 'break even' or surplus of total dollars. In other words, in the past at least, even though American consumer dollars were flowing to China or American gov't bonds were flowing to Europe, American dollars invested overseas by the 'rich', by mutual / hedge funds etc. always produced enough investment income to counterbalance.
Now for the first time, the amount of dollars being 'earned' by American investments overseas plus the amount of foreign investment returning dollars to America is falling short of the number of dollars flowing out of America for the purchase of oil, consumer goods etc. At least when the dollars were recycled it maintained the 'appearance' that the economy was business as usual. But if this dollar 'hemorrage' continues for very long it will very likely lead to liquidity crisis.
Also, the proverbial 'tin foil hat crowd' would tell you that this constitutes proof that Americans have now hit a 'credit wall' in terms of extracting equity from their homes to fund consumption, and that they are now shifting to selling off their investments in order to fund consumption. If so this has major ominous overtones for the world stock markets as well as the American dollar / economy in general.
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