The QE2 Carry Trade is on: Record US debt issued for overseas investment

In the old days, investment was very compartmentalized.  French investors invested in the French economy, US investors invested in the US, and Brazilian investors stuck to Brazil.  Now, the Fed has started to take notice that money is fungible.  When we push out money by quantitative easing it's supposed to goose the American economy.  But, instead it looks like it is goosing the Chinese and Russian economies instead. 

It is possible to export investment and even inflation as these emerging economies are seeing record investment, leading to general inflation.  Via Bloomberg:
“You’re seeing leakage from quantitative easing,” said Stephen Wood, chief market strategist for Russell Investments in New York, which has $140 billion under management. “That leakage is going into emerging markets, commodity-based economies, commodities themselves and non-U.S. opportunities.”

U.S. corporations have issued more than $1.07 trillion in debt so far this year, according to data compiled by Bloomberg. Foreign companies also are tapping U.S. markets for cheap cash, selling $605.9 billion in debt through Nov. 15 compared with $371.8 billion for all of 2007, before the Fed cut the overnight bank-lending rate to a range of zero to 0.25 percent.

“I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places,” Richard Fisher, president of the Federal Reserve Bank of Dallas, said in an Oct. 19 speech.

Average yields on corporate bonds in the U.S. fell to 4.4 percent on Nov. 4, the lowest on record, from 10.6 percent two years ago, according to Bank of America Merrill Lynch index data.

Fisher said “far too many” large corporations told him that “the most effective way to deploy cheap money raised in the current bond markets or in the form of loans from banks, beyond buying in stock or expanding dividends, is to invest it abroad.”


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