Some Thoughts on Overseas Investing in U.S. Real Estate - SGTreport

by Charles Hugh Smith, Of Two Minds:

Overseas investor buying of U.S. real estate is a consequence of trade deficits that have built up huge surpluses of U.S. dollars that must be recycled into dollar-denominated assets. Perhaps we should welcome the investment as both necessary and positive.

What few media pundits seem to grasp is that when our trade deficits transfer hundreds of billions of dollars to other nations, those dollars have to end up in dollar-denominated assets like bonds, stocks or real estate. Mish of Mish?s Global Economic Analysis has tirelessly explained this dynamic many times: when U.S. dollars (USD) end up in another country as a result of our gargantuan trade deficits, the dollars don?t just vanish into some other currency. One way or another, they have to flow into one dollar-denominated asset or another.

Many people have missed the difference between dollars used to settle accounts and dollars held as a result of trade deficits. Many of those emotionally wedded to the belief that the U.S. dollar is doomed gleefully grabbed onto the news that China and Japan will swap currencies directly (yen and yuan) rather than intermediate the trade with U.S. dollars. This was mistakenly seen as a nail in the coffin of the USD.

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