Foreign Money Flowed Out of the U.S., Not In, During the Global Financial Crisis

There is one fact that nearly everyone—prominent investors, leading international economists, and top think tanks—tend to get wrong: the direction of capital flows during the global financial crisis (which is probably better understood as the North Atlantic financial crisis, as its epicenter was in the United States and in European banks investing in the US mortgage market)

Because the dollar (somewhat surprisingly) rallied during the crisis, there is an assumption that foreign investors moved funds into the U.S. This is a key part of the classic claim that the dollar is the ultimate “safe haven” asset: it rallied even when the United States is the source of the underlying financial trouble (See a recent column by the FT’s Robert Armstrong).