Friday, March 03, 2006

Foreign Ownership of US Assets a Good Omen

Sober piece from Nelson Schwartz on foreigners buying US assets. Thought it was another scare calling for protectionist policies, but pleased to read it and find that it made good, calm sense:

“Forget oil. Now the Gulf is exporting money.
Lost amid the political furor over the Dubai ports deal is a much larger story -- a tidal wave of cash is flowing into the Middle East. And we're going to have to learn to live with it
By Nelson D. Schwartz, FORTUNE Europe editor (3 March)

Well, if you buy 1.5 million barrels a day from Saudi Arabia you have to pay for it, which means handing over dollars to the Saudis who tend to spend it in the US. That means whatever you sell to them to pay for oil, you get back your some of your dollars and they get whatever goods and services they buy from you. It’s called trade.

Nelson Schwartz sums it up:

And if you don't buy into Adam Smith and all that or are in a protectionist mood a la France, consider that the downside of our car-centric lifestyle is shifting money and power to the countries that supply us with oil. We can't buy their oil and then refuse to do business with the suppliers -- the world doesn't work like that anymore, if it ever did. Think about that the next time you fill up your SUV.”

And it applies to more than oil – think China, think Japan, think Europe. Trade is beneficial. Goods and services are moveable out of the country. Physical assets like buildings, sports stadiums, hotels, ports, and railroads are not.

It’s like the reverse flow that Keynes once commented up in reference to British capital that built the New York urban railways; British investors lost their money when the railway system went bust, but New York still had, and has, a railway system. The Saudis cannot move these assets to Saudi Arabia and they are stuck with them where they are in the USA. They have an interest in keeping them safe and not helping anybody to destroy them


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