Capitalism in Crisis: America for Sale
The US borrows billions of dollars a day
from the rest of the world to keep its economy going
We import between $53 and $63 billion
more than we export each month
The gap is filled by borrowing and
selling assets - lately, at a fever pitch/h1>
Bailing Out America [Foreign Reporting]
In the latest sign of America's sinking financial fortunes, investors from as far afield as Japan, Korea, Singapore, Saudi Arabia and Kuwait have come to the rescue of Wall Street.
The list of players that agreed yesterday to pump a combined $19.1 billion of capital into Citigroup Inc. and Merrill Lynch & Co. spotlights a dramatic shift in power.
After flooding the world with capital that fed both economic growth and excess, battered U.S. financial institutions now are turning to countries and companies that not so long ago were suffering through their own disasters.
Yesterday's infusions follow earlier investments into wounded American and European titans, including Morgan Stanley and UBS AG.
The bailout is another milestone in a long-running trend: the subsidization of the U.S. economy by foreign investors, from Asian governments purchasing U.S. Treasury bonds to finance the national debt to deep-pocketed oil states snapping up stakes in hobbled banks.
Deeper in Debt [Asia Times]
America borrows billions of dollars a day from the rest of the world to keep her economy going. We import between $53 billion and $63 billion more than we export each month.
This gap is filled by borrowing and selling assets. Lately this has been occurring at a fever pitch.
Foreign entities inject tens of billions per month into government bonds, home mortgages, stocks, bonds and loans.
Lately, Middle Eastern oil exporter sovereign wealth funds and East Asian export surpluses are channeled - by the tens of billions - into leading US financial institutions.
Anyone who exports oil, or goods and services to the US ends up with dollars. The more they sell and the higher the price they get, the more dollars they end up with.
The US runs huge, persistent and rising trade deficits with oil exporters and Asian goods producers. Oil prices have been rising fast.
Huge pools of dollars have built up in state administered accounts and been channeled into international investment funds, sovereign wealth funds.
On January 15, we received the announcement of $22 billion more being invested in Citigroup and Merrill Lynch by these sources.
According to the most recent available data from the US Treasury Department’s TICS System, across September and October 2007 foreign entities were net purchasers of $76 billion in US government debt.
This means that foreign entities purchased $76 billion in claims on future tax collections or asset sales by the US government.
Across the same two months foreign entities were net purchasers of $26.4 billion in agency bonds - largely US government-supported home mortgages.
This largely means that billions of dollars in mortgage payments will be collected and sent to the foreign owners of our mortgages.
In September and October 2007, we were net sellers of $39.2 billion in corporate bonds. This can be seen as a series of promises to repay loans with interest from the future earnings of US corporations.
Last but not least, the US net sold $32.8 billion in stock to foreign holders across September and October. Stocks represent ownership in US corporations and claims on possible future dividend.
All the above is sold to keep the international financial markets functioning and the US economy moving forward.
We have reached milestone dependence on foreign wealth. East Asian goods exporters and Middle Eastern energy exporters have been pumping vast sums into our economy and into leading financial firms.
Citigroup, Merrill Lynch, Morgan Stanley, Bear Stearns and others have received tens of billions from sovereign funds directly and are actively seeking more.
Governments of potent net exporters sit atop $3-$5 trillion in assets. This is being deployed to increase their returns and assure their positions in the global economy.
Lately, this means the money is used to rescue and purchase influence in leading US financial firms.
By extension, these purchases extend - at very least the possibility - of broader influence in the US. Part of being in a downgraded position is the increasingly intense hunt for foreign money and favor.
Again there is no free repair service. The East Asian exporters and Middle Eastern funds allocating tens of billions of dollars into distressed and declining value US firms are not motivated purely by an urge to help.
Recent past investments have returned huge losses. We can assume they are knowingly taking risks and throwing good money after bad. You can be sure the guiding intent is not benevolence. We are not guided by good will when our monies flood into their economies.
These developments and the weakening state of economic affairs, beg a series of political questions that are likely to shape debate and decision for the next several years.
What is given in return for all this investment, purchase and borrowing? I am not arguing against these actions, I am asking what are the costs? Be assured, there are costs.
The past few months have seen foreign wealth funds pour tens of billions after tens of billions of dollars into US firms.
All the while they must have been experiencing huge losses on dollar investments and past purchases. Major exporters and oil producers have needs and wants from US firms, consumers and government policy.
Interdependence grows with diversified ownership and our presently profound owership. Floods of needed cash by distressed firms and trillions in assets owned intertwine the interests of far-flung owners and lenders with firms and others in the US.
Our monies and credits have been deftly extended around the world with plenty of attached strings. It seems only reasonable to assume this will be true of the wealth now flowing into the US.
There will be a deep pocketed new player sitting - in spirit or flesh - at the boardroom table, the kitchen table and in the halls of state power.
As belt-tightening looms, government tax and spending decisions are made, foreign policy actions are debated, free trade is contested.
Our new partners will be in the mix. Middle East oil exporters have regional needs and issues. Alliances, markets, security arrangements and political realities are in flux these days.
East Asian exporters fear a free-trade lash-back, market access restrictions and external policy meddling.
Today’s deals and credit could influence future actions on these fronts. As spending is paired by American state agencies, households and firms, pressures intensify.
This creates political disagreements and raises the stakes of debate. Free-trade and foreign-policy issues are hugely important around the world and loom large in the 2008 election cycle.
The risks to change and the return to allies heighten during weak economic times and presidential elections.
We muddled through the closing months of 2007 by selling our assets at a rate of $87 billion per month in September and October.
That rate has risen over the past three months. All this begs two questions: Why do they buy? What exactly are we selling? These questions should be asked by the citizens of any nation in the age of globalized markets.
Suspicion of foreign buyers is not an answer.
It is bigoted and narrow minded. It is equally naďve to assume that recent purchases are benevolent billions from far off lands.