While the repatriation of U.S. corporations’ profits held overseas has helped pay for buybacks, it also has drained those dollars held in banks abroad, causing dislocations in the global banking system. In essence, this shift has hampered the ability of foreign banks to expand their balance sheets, writes Steve Blitz, chief U.S. economist at TS Lombard.
He estimates U.S. corporations’ earnings held abroad fell at a seasonally adjusted annual rate of $632 billion in the first quarter, which he compared to the $160 billion SAAR of decline in the Fed’s securities holdings. Blitz opines this effect has had an even bigger impact on emerging markets than the reduction of the Fed’s balance sheet, which is being blamed by some monetary authorities abroad for the weakness of EM currencies.
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