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Foreign investors pulling out of U.S.

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Kai Ryssdal:

You know, that extra day we get every four years we probably could have done without, this time around.

The stock market fell pretty hard today, the dollar tumbled to new lows overnight, oil hit new highs, consumer sentiment plunged to a 16-year low… Hang on, I’m almost done: The Federal Reserve announced yet another big drop of liquidity into the banking system. And to top it all off, the Treasury Department says overseas investors have begun to abandon the U.S. stock and bond markets.

Marketplace’s John Dimsdale reports from Washington.

John Dimsdale: Treasury reports foreign purchases of U.S. stocks and bonds totaled a trillion dollars in 2007.

Sounds impressive, but that’s actually down 12 percent from the previous year — the first drop in a decade. That caught the attention of Quincy Krosby, the chief investment strategist at The Hartford Insurance Company. She says the U.S. depends on foreign investors:

Quincy Krosby: It always worries everyone. The market takes a deep sigh, Because when you need that foreign infusion of capital, when buying is light, you begin to wonder, “Oh my goodness, is this the red light that it’s going to change, and change overnight?”

Not all foreign investment is leaving. Foreign companies and sovereign wealth funds are taking stakes in private equity firms and other U.S. companies, but Global Insight economist Nigel Gault says the foreign flight from U.S. securities means in the future credit will be more expensive and Americans will have to rely increasingly on their savings.

Nigel Gault: The U.S. is going to have to reduce its dependence on foreign capital because I don’t think its going to be as easy to attract the sort of financing that was attracted in the past. That adjustment will partly be made by the slowdown in growth in the U.S. economy, which is slowing our demand for imports.

The falling dollar is encouraging the shift in foreign investment. That erodes the capital gains foreigners earn from U.S. stocks and bonds and makes U.S. companies and real estate a real bargain.

In Washington, I’m John Dimsdale for Marketplace.

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