Posted on 03/19/2006 2:10:39 PM PST by AZRepublican
The United States must borrow more than $2 billion per day from foreigners to finance its huge trade deficits. In 2005, for example, there was a record deficit of $805 billion in the current account, the broadest measure of trade.
Foreigners sell their televisions, cars and oil to Americans and hold dollars in return. Those dollars are invested in stocks, bonds and other assets, including real estate and factories.
Foreigners already own half of the U.S. government's publicly traded debt. As of January, some $2.19 trillion in Treasury securities were in the hands of central banks, including China and Japan, and private investors abroad.
At the end of 2004, the total foreign direct investment in this country — actual factories, office buildings and other tangible assets as opposed to stocks and bonds — came to $1.53 trillion, 8.2 percent more than in 2003.
That investment shows up in all of the 50 states.
In Oakland, Maine, it's a customer service center for T-Mobile USA Inc., which is a subsidiary of German-based Deutsche Telekom. In Glendale, Calif., it's the U.S. headquarters for Nestle, the Swiss-based food and beverage company.
Arab investment has gotten the most scrutiny of late because of the now-withdrawn bid by a Dubai-based company to buy operations at six major U.S. ports. But statistics show that Arab investments represent only a a fraction of the total direct investment in the U.S. by foreigners.
European nations accounted for $977 billion, or two-thirds, of the $1.53 trillion of foreign direct investment, according to figures compiled by the Commerce Department.
By contrast, Arab countries in the Middle East accounted for $9.3 billion, led by $4.7 billion in investment from Saudi Arabia. The United Arab Emirates was second among Middle East Arab countries with $1.8 billion in investments, according to the data.
(Excerpt) Read more at foxnews.com ...
The end of life as we know it.
"The U.S.is one of the very few places on earth where it is safe to invest large amounts of money." YES,JUST ASK CHINA!
Sure, unless it involves private ownership of gold, or valid contracts to operate ports, or...
ping
Who cares? Remember 9/11? It's all about 9/11!
Precisely because of globalization, the diversification benefits of international investments have been significantly reduced over the past decade. While it is true that a decade or so ago financial professionals would advocate investments in international equities and fixed income securities as a tool for diversification, recent empirical studies show that correlations of returns between domestic and foreign assets have been consistently increasing and hence, reducing diversification benefits. Foreign investments have additional risks such as foreign currency exchange and country credit risk which ought to be weighted against decreased diversification benefits and expected return.
What are you afraid of?
It would depend on what economic indicator/(s) you would select to define a state of economy and whether the indicators you selected seem to have predictive power. Robert McTeer, the head of Dallas Federal Reserve, in October of last year defined two ways to address the current account deficit 1) either US incomes would have to shrink so that consumers will buy less foreign imports or 2) the dollar would have to weaken. At the same time Warren Buffett has taken large short positions against the US dollar.
HOW HORRIBLE!
LOL!
Personally, I think this means that the US is a good investment. I'd be more worried if foreigners were rushing to pull their money out of the US. The only downside here is the possibility of economic blackmail, especially from countries who could dump enough US T-bills to make us change our policies. I have been hearing all my life that the trade defit and federal borrowing are unhealthly, but still haven't seen it yet. And I'm starting to get up there in years.
As domestic markets get saturated with a product or service, domestic companies look into foreign markets for further growth potential and subsequently become multinational companies. The growth of US stock market and wealth of US investors would have been severely limited if companies did not pursue multinational strategy.
The job of any CEO is to maximize the wealth of the stakeholders in the company. If a CEO pursues any other activities, such as siphoning money to non-company related causes, that CEO should be fired.
Let's keep in mind that the port issue was a transfer of assets between two foreign companies that happen to have operations in US. There were only two bidders for the British company assets in US. The company with the highest bid secured the assets and then the government interfered.
The deficits are making the United States a less attractive place for investment. That is why the dollar is dropping and one of the reasons that the stock market is under pressure. The largest foreign holder of US Treasuries, Japan, has reduced its exposure to US treasuries as the Table 3 in the following link indicates.
http://www.gillespieresearch.com/cgi-bin/s/article/id=784
As recent as last quarter or last year, foreign investors were net sellers of US equities. It was the intervention by foreign central banks that prevented a run on the dollar.
If there is a balance of trade, there is no net gain or no net loss to the economy due to trade.
When there is a trade deficit, there is a NET LOSS to the economy due to trade. That means that money which would otherwise be spent in this country, goes out of country.
Now a high deficit doesn't bother the people involved in international money transfers, they make money whether money is going into or out of the US. In fact they dislike it when money stays in the US because then they don't get to take a cut off the top, so to speak.
A trade deficit is bad to a domestic economy because it means that more money is going out of the economy than is coming in. It is a redistribution of wealth.
Congress and recent white house administrations have tried to hide the loss of money to the US economy due to the trade agreements they have signed, by rewriting our rules about foreign ownership to allow foreign agents to invest in this country. This investment hides the true harm the trade deficit. Because now, instead of trading little pieces of green paper for hard goods, we are trading our real property for little green pieces of paper.
The trade deficit does matter, and is harming us and will harm our posterity.
"The fact that the US sells more or less products overseas than those sold to US consumers borders on meaningless. "
"...the Bush bashers are pulling out the stops to induce a counter panic."
I think you might be confusing the issue. Just because someone says something about the trade problem doesn't mean they are bashing Bush. In fact, private and government economists have been cautioning about this problem for years, long before Bush.
Oh, and this trade problem isn't "meaningless".
Oh, I understand exactly what the port issue was all about.
The original poster wrote, "That is because the U.S. is a capitalist nation that enforces laws and contracts. Investments are safe from nationalization and seizure by government...", and the ports deal belied that claim. Dubai Ports World made a legal investment, purchasing contract rights to operate US ports. The United States Government made it clear that those rights were to be voided.
The fact that the US didn't strictly nationalize the ports contract does not mean that seizure didn't occur. Every potential purchaser of those ports contracts understands that Dubai is a 'motivated seller', and can use that fact to their advantage in negotiations. A seller can't obtain top dollar in the case of a fire sale. The difference has been taken by the US Government.
This taking is really not that much different from the imminent domain ruling which produced an uproar here recently, allowing government to take from one private party and give to another private party. The main difference is that the taking is not from a US citizen, but rather a foreign entity.
The original poster was speaking of exactly those types of investors when claiming that, "The U. S. is one of the very few places on Earth where it is safe to invest large amounts of money" for the reasons I quoted above. In fact, in the case of the ports deal, the US proved not to be a safe place to invest a large amount of money, because the US declined to allow continuity of a legal contract, and proved that investments by foreigners are not safe from 'patriation' and seizure by government.
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