Over the past two weeks, I have done the best I can to help re-stimulate the economy. I got married, I closed on a new house, I hired contractors, and I spent as much as I could. Well maybe I could have spent more.
This morning I returned to the real world. And, what did I see? Gold is right around $1,000 an ounce. The dollar sank to its lowest level in nearly a year. The Chinese, through their sovereign-wealth fund, are looking at investing big bucks in United States real estate, a better longer term investment than putting them in United States Treasury securities.
In this vein, the Wall Street Journal contains a “tongue-in-cheek” letter from the Ministry of Finance in Beijing to “Dear Esteemed Chairman and Savior of the World Economy” in its editorial “Dear Chairman Bernanke” congratulating Chairman Bernanke on his re-appointment at the Chairman of the Board of Governors of the Federal Reserve System (http://online.wsj.com/article/SB10001424052970203440104574401212809493056.html#mod=todays_us_opinion).
And, what about the quantity of United States Treasury securities?
Martin Feldstein has presented a sobering opinion about the future of federal deficits resulting from the proposed health care proposals. (See his “ObamaCare’s Crippling Deficits” in the Wall Street Journal, http://online.wsj.com/article/SB20001424052970203585004574393110640864526.html#mod=todays_us_opinion.) Feldstein quotes the Congressional Budget Office report of March 2009 which estimates that federal deficits “will average 5.2% of GDP over the next decade and will be 5.5% of GDP in 2019.” He adds that “Without the president’s proposals, the budget office forecasts a 2019 deficit of only 2% of GDP.” However, Feldstein argues, “More realistic assumptions would imply a 2019 deficit of more than 8% of GDP and a government debt of more than 100% of GDP.”
And what news do I see about economic activity?
I guess my stimulus efforts are not having much of an effect. Consumers aren’t borrowing, banks aren’t lending, commercial real estate is showing higher and higher levels of vacancies and unemployment has reached 9.7% of Americans looking for a job. Of course, this does not include the discouraged workers that are not seeking a job which indicates that the people without jobs is above 15%. And, today, there was an article in the New York Times about all the fancy mortgage loans granted over the past four or five years that are going to be re-pricing in the next 12 to 36 months, re-pricing at substantially higher payments that individuals and families will not be able to cover given their current income levels.
Americans seem to be de-leveraging. However, the net worth of American households is declining. But, America, the nation, seems to be leveraging up. The dollar is declining and this makes American physical assets cheaper and cheaper to those in the world that possess wealth, that hold United States Treasury securities.
As the dramatic events of the financial crisis recede we return to the story that was developing in 2007 and early 2008. This story evolved out of the massive federal deficits created by the Bush 43 administration and the more than 40% decline in the value of the United States dollar. Earlier in this decade, before the financial collapse, the wealth of the world was being shifted to China, India, and the Middle East. These countries and their sovereign wealth funds were buying more and more physical assets in the United States as their wealth increased and the value of the dollar declined.
On returning to the real world, it seems as if this latent story is still alive and well and will continue into the future as more and more wealth is transferred out of the United States and into the rest of the world.
Showing posts with label sovereign wealth funds. Show all posts
Showing posts with label sovereign wealth funds. Show all posts
Wednesday, September 9, 2009
Thursday, February 28, 2008
More Concern over Sovereign Wealth Funds
The United States is concerned over the investments of Sovereign Wealth Funds in the United States. (See my post of February 26, “Bad Policies Eventually Catch Up With You.”) We now learn that the European Union is looking into voluntary codes of behavior for Sovereign Wealth Funds who invest in European companies. (See the February 28 article in the Wall Street Journal: http://online.wsj.com/article/SB120411561508896669.html?mod=todays_us_page_one.)
Yes, the problem is now being recognized, but the bull has already been released into the china store. The question is “Will these funds voluntarily behave over time or will nations have to legislate how Sovereign Wealth Funds should behave, and thereby put up barriers to free and open global trade?“ The Wall Street Journal article says that “Germany said yesterday it would push ahead with its own legislation aimed at shielding companies from unwanted foreign takeovers.” The United States has prevented some investment into areas that are related to national security. These may seem to be minor efforts, but once begun they can always be used as examples to push legislation a little further and then even a little further.
There is one important question and one fact that needs to be assessed relative to the situation the United States now finds itself in. The question is: “If globalization is good for our expansion throughout the world shouldn’t globalization be allowed to return to our shores with the expansion of other countries into the United States?” The fact is: the United States is now a ‘small country’ in terms of economics and finance and cannot just follow any fiscal or monetary path that it desires. Other sizeable countries in the world learned this about themselves in the 1980s and 1990s. The United States is learning this right now!
Yes, the problem is now being recognized, but the bull has already been released into the china store. The question is “Will these funds voluntarily behave over time or will nations have to legislate how Sovereign Wealth Funds should behave, and thereby put up barriers to free and open global trade?“ The Wall Street Journal article says that “Germany said yesterday it would push ahead with its own legislation aimed at shielding companies from unwanted foreign takeovers.” The United States has prevented some investment into areas that are related to national security. These may seem to be minor efforts, but once begun they can always be used as examples to push legislation a little further and then even a little further.
There is one important question and one fact that needs to be assessed relative to the situation the United States now finds itself in. The question is: “If globalization is good for our expansion throughout the world shouldn’t globalization be allowed to return to our shores with the expansion of other countries into the United States?” The fact is: the United States is now a ‘small country’ in terms of economics and finance and cannot just follow any fiscal or monetary path that it desires. Other sizeable countries in the world learned this about themselves in the 1980s and 1990s. The United States is learning this right now!
Tuesday, February 26, 2008
Bad Policies Eventually Catch Up With You!
There were the headlines, right on the front of the February 26 Wall Street Journal: “U. S. Pushes Sovereign Funds to Open to Outside Scrutiny.” We are told that “Seeking to head off a political backlash against huge investments in Western companies by Asian and Middle Eastern government-run investment funds, the U. S. is prodding two of the biggest funds to embrace a set of promises that they won’t use their wealth for political advantage.” The request: Please don’t act in your own interest.
The economic policy of the previous seven years, the Bush/Greenspan version, has come home to haunt us and the U. S. is now pleading with offshore interests to “be gentle with us.” The monetary and fiscal policies of the past seven years have resulted in an almost constant decline in the value of the U. S. dollar. American assets have never been available at such cheap prices and, due to other policies, such as those related to energy, offshore interests have the wealth to scoop up these assets. Furthermore, the same governmental policies that resulted in the weak dollar also helped to underwrite inflationary financial relationships. As a result, not only is the dollar weak, but many of our major institutions are weak so that they ‘need’ the infusion of funds from offshore to keep them healthy.
It is interesting to hear the candidates running for President of the United States talk about all that they are going to do economically when they are elected. Much of what they are promising, I believe, will have to be put on the shelf for a later time until some balance is restored to our basic monetary and fiscal policies.
The economic policy of the previous seven years, the Bush/Greenspan version, has come home to haunt us and the U. S. is now pleading with offshore interests to “be gentle with us.” The monetary and fiscal policies of the past seven years have resulted in an almost constant decline in the value of the U. S. dollar. American assets have never been available at such cheap prices and, due to other policies, such as those related to energy, offshore interests have the wealth to scoop up these assets. Furthermore, the same governmental policies that resulted in the weak dollar also helped to underwrite inflationary financial relationships. As a result, not only is the dollar weak, but many of our major institutions are weak so that they ‘need’ the infusion of funds from offshore to keep them healthy.
It is interesting to hear the candidates running for President of the United States talk about all that they are going to do economically when they are elected. Much of what they are promising, I believe, will have to be put on the shelf for a later time until some balance is restored to our basic monetary and fiscal policies.
Subscribe to:
Comments (Atom)
