Free trade radicals that don’t like enforcing the rules have said
allowing all foreign investment is good. Foreign investment is
money coming into our country to buy companies and assets, when we are
being drained by the trade deficit. "It balances out," they say.
Not
really. China uses the dollars purchased through their currency
manipulation to buy U.S. assets. This is the Chinese government,
not fully private Chinese companies.
"Sovereign
wealth funds" is the term. They are government controlled funds
that buy foreign assets. They are foreign policy tools, not
responders to market signals.
The argument on these funds has not been well developed, and those voicing concern are successfully shouted down. So far.
Now the SEC’s Christopher Cox has raised the concern, along with other U.S. and G-7 officials. The China purchase of the Blackstone Group was specifically raised.
The rise of sovereign wealth funds,
along with that of government-owned companies that are publicly traded,
Cox said, "call into question the adequacy of our enforcement and
regulatory regime."
interest that arises when government is both the regulator and the
regulated," he said, and the opportunity for political corruption
increases when individuals with government authority also possess
massive commercial power.
"What effect will these new government participants in our markets have
on our markets?" Cox asked. "At the SEC, our concern is that these
activities not harm the investors we work to protect every day … and
that they not compromise the maintenance of fair and orderly markets."
Solutions are probably not mere openness. Sovereign wealth fund
investment is probably worth slowing or halting. National
security and market function are at risk.
Countries with sovereign wealth funds include: China, Korea, Kuwait,
Norway, Russia, Saudi Arabia, Singapore and the United Arab Emirates.
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Warren Buffett wrote a parable, Squanderville vs Thriftville, published in Fortune Magazine in October 2003. His description is of the outcomes we now observe. Absent policy change, our children and theirs will be indentured. The article is available on the web at http://www.freerepublic.com/focus/f-news/1053684/posts
Mr. Buffett stated clearly where his investment philosophy would lead – offshore and into critical infrastructure – and away from tradable goods production in this country. He’s done well, with others in an elite; lack of policy leadership has not benefitted the country as a whole.
Reported today, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=abvy_cUjUwmI, Berkshire Hathaway third quarter profit surged 64 percent after gains from its investment in PetroChina Co.
“Buffett, 77, is investing outside the US to spur profit growth at his $200 billion investment and holding company as insurance profits wane. Results were helped by Israel-based Iscar Metalworking Cos., acquired for $4 billion last year in Buffett’s first purchase of a non-US company. PetroChina rose more than eightfold since Berkshire’s $488 million investment in 2003.”
Have the U.S. government own and run U.S. enterprises? (e.g., utilities, U.S. ports, military logistics) No way.
Have foreign governments own and run U.S. enterprises? No problem.
Examples of their hypocrisy and inconsistency are legion.
Good piece on a hot issue. Until we Americans get serious about conserving energy and developing domestic sources to replace imported oil and gas (one-third of our total tarde deficit), there’s not a lot that can be done to slow the growth in the oil exporter SWFs. China and Korea, on the other hand, have amassed their massive stashes through export-led growth enabled by undervalued currencies. The beauty of this strategy is that the dumb Americans will keep printing dollars to replace the ones you just spent to buy assets. China could spend $15-20 billion every month — $180 -240 billion every year — on overseas assets and not draw down the $1.4 trillion in its national kitty by one dollar. This money is off-budget — a mammoth national slush fund under the control of the Communist Party — and, until the US decides to counteract currency undervaluation, it is replenished daily. Let’s hpe that the new attention on SWFs will be the straw that breaks the back of unchallenged currency manipualtion. Such a solution is long overdue. The US Treasury has been making “technical” excuses for foreign currency manipulators — China, Japan, Kotrea, Taiwan, Malaysia and others — for 13 years. This madness must be stopped while there’s sill time. The Congress needs to stop the bickering and poltical posturing and pass tough currency legislation this year.[i][/i]