Foreign investment in US Financial Institutions - it's a good thing!

Not trying to be rude, but how much have you studied this topic?

https://www.cia.gov/library/publications/the-world-factbook/

PR 

(God Bless America playing softly in the background): Spencer I have a huge problem with the sissy little investors who pulled out and left us exposed. My prediction a year ago was that China and the Arab Emirates would buy America one mortgage at a time. Now that's not exactly what has happened but it's on the wrong path. Then again I have a huge problem with globalization and the UN.

It's so true.  The more we receive the more valuable we are to others.  They can't walk away from this great opportunity.  Capitalism at its best.

The Fact Book was to give you an idea of who you are rolling out the welcome mat and tootin' the horn for in case you didn't know already. It's a incredible resource-FYI. 

Washington policymakers have placed the US economy in a dilemma. If the subprime mortgage meltdown worsens, low US interest rates will be required in order to contain the crisis. But if the dollar's plight worsens, high US interest rates will be required if foreigners are to continue to hold dollars and to finance US budget and trade deficits.

Forced to choose, Washington will raise rates in order to protect their ability to borrow. Without dollars from abroad, Washington cannot conduct its wars of aggression, and Americans cannot consume $800 billion dollars more each year than the economy produces.

The dollar's decline has resulted from foreigners accumulating new dollars at a lower rate. They still accumulate dollars, but fewer. As new dollars are still being produced at high rates, their value has dropped.

A few years ago the euro was worth 85 cents. Today it is worth $1.44. During the current administration the US dollar has lost 60% of its value against other traded currencies.

Foreigners who finance the US budget and trade deficits have experienced a huge drop in the value of their dollar holdings. The interest rate on US Treasury bonds does not come close to compensating them for the decline in the value of the dollar. Nor do investment returns from real estate and equities.

China holds over one trillion dollars. Japan almost one trillion, in dollar-denominated assets. Other countries have lesser but still substantial amounts.

Wall Street claims that foreign countries are locked into accumulating dollars in order to protect the value of their existing dollar holdings. Foreigners have continued to accumulate dollars in the expectation that sooner or later Washington would address its trade and budget deficits. However, now these deficits seem to have passed the point of no return.

By offshoring production for US markets, the US has no prospect of closing its trade deficit. The offshored production of US firms counts as imports when it returns to the US to be marketed. The more US production moves abroad, the less there is to export and the higher imports rise.

The situation may be even more dire. Recent work by Susan Houseman concludes that US statistical data systems, which were set in place prior to the development of offshoring, are counting some foreign production as part of US productivity and GDP growth, thus overstating the actual performance of the US economy.

In the 21st century, the US GDP has been driven by consumers going deeper in debt. Fed chairman Alan Greenspan's low interest rates triggered a housing boom, which created equity for consumers to borrow and spend. This source of US economic growth is exhausted and imploding.

If the huge bonuses paid to CEOs for offshoring their corporations' production and to Wall Street for marketing subprime derivatives are removed from income figures, Americans have experienced a decline in real income. Some studies, such as the Economic Mobility Project, find long-term declines in median incomes and upward mobility. A tax increase on flat incomes to close the budget deficit would cause widespread distress.

Japan and China, indeed, the entire world, realize that they cannot continue to give Americans real goods and services in exchange for depreciating paper dollars. China is endeavoring to turn its development inward and to rely on its potentially huge domestic market. Japan is pinning hopes on participating in Asia's economic development.

The reason the dollar has not completely collapsed is that there is no clear alternative as reserve currency. The euro is a currency without a country. It is the monetary unit of the European Union, but the countries of Europe have not surrendered their sovereignty to the EU. Moreover, the UK, a member of the EU, retains the British pound. The fact that a currency as politically exposed as the euro can rise in value so rapidly against the US dollar underscores the weakness of the US dollar.

If foreigners were to stop accumulating new dollars, the dollar's value would plummet. If foreigners were to reduce their existing holdings of dollars, the flood of dollars in America would inflate prices out of sight. The reign of the US as the economic superpower would end.

 

http://www.scotiacapital.com/English/bns_econ/fxout.pdf

 

 

http://www.bos.frb.org/economic/banknote/bn2007/bn1207.htm

 

http://www.bea.gov/newsreleases/international/transactions/2007/trans307.htm

 

http://www.iht.com/articles/2007/11/13/opinion/edrohatyn.php

Wow,

Paige, who are you? You just have to be MeMed. Will be waiting for that.

The reign of the US as the economic superpower is coming to an end anyway.  It's dying of natural causes, i.e. complacency, just like England's reign died a hundred years earlier.  This century belongs to China and India.  The Chinese government is pumping money into our economy so that we can continue to buy their products.  In the end, they are buying us out with cheap, hopefully non-toxic merchandise from Walmart.

It's Manhattan Island for a bunch of beads all over again.

Am I opposed?  Nope.  We've moved from a culture of war to a global economic meritocracy.  Those who don't strive for the top don't deserve to stay on top.

And along with that infusion of capital into our financial infrastructure comes a lot of subtle and not so subtle influence. 

Americans need to learn from the example of Yahoo when they invested in China.  Yahoo gave up the identity of Chinese dissidents and they are now in prison.  Now we welcome the Chinese investment in our financial giants on Wall Street???  It's insane. 

Welcoming investment from governments of countries that do not share our business culture and over which we have no legal supervision is risky in the extreme.  Having investments in our financial institutions by countries where bribery is a way of life just makes a mockery of any attempts to keep our financial institutions clean.  Goodness, the system of bribery that runs the U.S. Congress will now run Wall Street, except that it will be foreign investment in financial giants rather than American special interests. 

America will always lose the public relations war.  What else will we lose???