Floyd Norris of the New York Times highlights something that was also on my radar screen:  a sharp fall off in foreign demand for US treasury bonds. For the first time in years, the US budget deficit is being financed by domestic investors.

Foreign inflows to the US haven’t fallen off, to be sure.   But the composition of these inflows has changed.  Foreigners are buying more agencies and US corporate debt and fewer Treasuries.  First quarter data is here; the TIC data from April and May do not indicate that the story has changed. 

Why?

Well, one theory is that foreign central banks have stopped financing the US.   I don’t believe that.  I do believe that the set of central banks now adding to their reserves is far different than the set of central banks adding to their reserves in 2003 and 2004.  Oil exporters have replaced Japan and (to a lesser extent) many Asian countries other than China.    And as I almost constantly note, the oil exporters generally don’t show up in the US capital inflows data directly.   Their presence is felt, but not directly observed.