Foreigners are such nice people...lucky for us!
Bill Bonner - Daily Reckoning
Wednesday, August 18, 2004
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More and more, we Americans depend on the kindness of strangers.
The record U.S. trade deficit of June - $54.8 billion - had to be financed by strangers in strange places. Like Japan. And China.
The U.S. federal deficit for June - nearly $70 billion - also had to be financed by someone. Thanks again to strangers in strange places.
Any other country that ran such huge and chronic deficits would be an immediate "sell!" You'd want to get rid of its currency and its bonds as fast as you could. But Americans think their country is special; the rules, principles and constraints that apply to the strangers don't apply to us, they say - we're exceptional!
Besides, the strangers seem to think so too. They save; we spend - currently, it takes nearly 80% of the entire world's available savings just to keep us spending in the style to which we've become accustomed. They produce; we consume - nobody does it better. They build factories and production facilities; we build too - houses and shopping malls.
This relationship - between America and strangers, notably the Chinese - is thought to be "symbiotic." It allows both parties to get what they want. Win-win, in other words.
Let's see...the Chinese get new factories, jobs, wages, profits, technology, assets, savings, capital, know-how. We Americans LOSE jobs, assets, savings, capital, factories, profits and so forth. But we get...hmmm...big-screen TVs, Game Boys, electronic gizmos, toys and everything else you find on the shelves of Wal-Mart. And debt. Lots of debt. $32 trillion last time we looked.
Well, that seems like a pretty good deal to us. What do you think, dear reader?
The foreigners own more and more of what used to be American wealth-producing assets. When Ronald Reagan arrived at the White House, foreign-owned U.S. assets were less than 15% of GDP. Now, they're over 78%. And they're growing rapidly. Net purchases of U.S. assets by foreigners rose to $71.8 billion in June, up from $65.2 billion in May. Most of that was in U.S. Treasury bonds. And most of those were purchased by Japan and China.
This puts the U.S. economy - and even its elections - largely in foreign hands. If the Chinese or Japanese should decide to sell Treasurys, for example, it would certainly boost interest rates, pop the housing bubble and likely cost George W. Bush the White House.
Fortunately for us, the foreigners are such nice people.
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