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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: sciAticA errAticA who wrote (32191)	4/23/2003 8:52:35 AM
From: sciAticA errAticA	Read Replies (1) \| Respond to of 74559

Where has foreign money gone? By Rachel Beck The Associated Press NEW YORK — This seems to be a battle the U.S. hasn't yet won: getting the world to invest here again. Foreigners continue to show disinterest in U.S. assets such as stocks and bonds, with volatile financial markets and continued economic weakness keeping them away. The problem is we need their money. The United States has become so reliant on foreign investment and borrowing that without those dollars it is going to be difficult to propel growth. "Like their counterparts in the U.S., foreign investors have been bruised by the plunge in the U.S. stock market over the past few years, and memories of last year's corporate governance scandals may restrain foreign enthusiasm for U.S. stocks," John Silvia, chief economist at Wachovia Securities, said in a recent report. When foreigners aren't making investments here, they don't need to convert their money into U.S. dollars, so that drives the greenback down. But the dollar's weakness also becomes part of the reason that foreigners don't want to invest here. When the dollar is falling, they lose money when converting the proceeds from the sale of their dollar-denominated investments back to their local currencies. The lack of capital flowing in from abroad also can hurt the economy. The shortfall between what the United States buys, sells and invests in abroad vs. what is coming into this country is reflected in the current-account deficit. Last year, that deficit hit an all-time high of $503.4 billion and was a record 5.2 percent of total U.S. gross domestic product. If an emerging market had a current-account deficit of that size, the resulting debt could be disastrous for its economy. But economists say they can't tell how damaging a continued expansion of the deficit could be on the U.S. economy, the world's largest. Stephen Roach, chief economist at Morgan Stanley, pointed out in a recent report that it takes more than $2 billion a day in foreign financing to cover that shortfall, and that is not a "stable situation." For years, the United States could rely on investments from global economies flush with savings. In recent years, though, those same global economies have seen their average household savings rate shrink — from 14 percent in the early 1990s to 2.5 percent today in Japan, for example — and their investments in the United States have dwindled. Now, the United States' dependence on foreign money needs to be reduced, too. seattletimes.nwsource.com