The risk to our economy

Four years ago Michael Ventura wrote a column about the dependency of our economy on foreign investors... we spend more than we make as a country, so the money has to come from somewhere.

He's updated that column as he now believes that those foreign investors (think China) have become less willing to prop up our economy.

In the column Ventura quotes a May article from the New York Times which reported that "The FDIC said the combined profit of the financial institutions it regulates plunged 46 percent ... during the first three months of the year."

SOMETIME IN THE LAST WEEK I read an article about the fact that the credit quality of the Federal Reserve's balance sheet has declined precipitously over the last year. Specifically, the portion of the Fed's assets that are in the form of U.S. Treasuries, considered the safest investment in the world, has dropped sharply.

I wasn't able to find that article again, but I found this blog post which addresses the same subject, and it links to the Fed's latest balance sheet which does, in fact, show a drop of approximately 40% in their Treasury holdings. They hold around $480 billion in Treasuries now, the figure was about $780 billion a year ago. The overall size of the portfolio is unchanged, so the takeaway is that the risk the Fed is exposed to has shot up. They've essentially been taking on risky assets from shaky institutions.

And this article suggests that the weakness in the financial industry is continuing, if not worsening.

Gulp.