Brad Setser calls this a scary graph. I think that fear factor is a little overdone. The graph only tracks long term flows and I think a lot of investors are parking their money in short term accounts until they figure out what’s safe and what’s not. Still, if there was a prize for dramatic drops this graph would take the prize for the year. And considering how this year went, that is saying something.
Plus, there is an implicit threat in this graph. If the fed does not start to value a sound currency then it is going to have to find 200 billion extra dollars a quarter to keep the US afloat.