Great Depression Online Archive Issue:

National Autonomy For Sale

Great Depression Online
Long Beach, CA
July 15, 2008

Inside This Issue You Will Discover…

*** Made In The USA
*** What Is An SWF
*** Selling National Autonomy
*** And More

Made In The USA

Made In The USA was once a symbol of superior quality.  It was the deluxe brand name.  And the world wanted it.  But the competitive advantage that the U.S. had won in WWII – as the last man standing of the industrialized world – began to fade by the late 1970’s. 

By the 1980’s, buying Made In The USA became a symbol of patriotism.  It felt good to buy a Chevy and support American industry.  And driving it around was a way to show your neighbors that you were a proud American…and that you supported keeping jobs on American soil.

Regardless, the forces of globalization only accelerated.  And by the dawn of the 21st Century you could no longer only buy Made In The USA even if you wanted to…the brand had practically ceased to exist.  And if it did, Wal-Mart had put all the stores that sold Made In The USA out of business.  

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But during all this flattening of the earth, something else was going on.  The U.S. began running a trade deficit.  That means it began spending more than it made.  As imports came in…the number one export from the U.S. was its dollar.  Surprisingly, other nations took these unbacked pieces of paper in exchange for real products.

Sometime during the 1970’s U.S. oil production also peaked out.  What was once the world’s largest oil producer…the U.S. became the world’s largest oil importer.  And similarly surprising, the oil producing countries also took unbacked paper dollars in exchange for their finite natural resources.

What to do with all these dollars they were accumulating became the big challenge for U.S. trade partners.  So what did they do? 

In what must have initially seemed like an act of divine intervention, U.S. trade partners took the dollars we sent them and exchanged them for U.S. Treasuries.  In effect, this allowed the U.S. to increase and monetize its debt, and create what seemed to be an ever endless supply of money and credit.

A little credit’s a good thing.  When it’s used to support profitable ventures, it increases the wealth of society.  But the flipside of credit is debt.  And further increasing credit to fund debt is a formula for ultimate and colossal bankruptcy.

We got word last Friday that the U.S. trade deficit for May 2008 came in at $59.8 billion dollars.  In other words, for each day of the entire month the U.S. spent $1.93 billion more than it made on a global basis.  Of course the difference was made up with debt: corporate debt, government debt, and private debt.

And with all this debt on the books, an unstable dollar, and a financial system in full meltdown, U.S. Treasuries are looking less attractive to foreign governments.  But with all these dollars flowing in they must do something with them…and they are.  They’ve created Sovereign Wealth Funds (SWF)…and they’re buying America.

What Is An SWF?

In short, a SWF is a state-owned investment fund used to invest cash stockpiles accumulated through running a positive trade balance.  The largest SWFs include Abu Dhabi Investment Authority with $875 billion, Government Pension Fund of Norway with $391 billion, Government of Singapore Investment Corporation with $330 billion, Kuwait Investment Authority with $264 billion, and China Investment Authority with $200 billion.

Eric J. Weiner, in a June 4th article for the Los Angeles Times, reports…

“In 1990, the funds held just $500 billion in assets combined.  Today, that figure is about $3.5 trillion.  For comparison purposes, that's more than all of the assets controlled by all of the hedge funds in the world.  And by 2012, the figure will be at least $10 trillion, according to estimates by the International Monetary Fund.

“The primary reason for this explosion is, in a word, oil.  As its price has soared from less than $25 a barrel in 2002 to more than $125 [$140] a barrel today, the value of sovereign wealth funds held by oil-rich nations has skyrocketed.  And this trend isn't expected to change any time soon.

“The new power of SWFs has been on graphic display during our recent mortgage crisis.  They've essentially rescued the international financial system by injecting tens of billions of dollars into troubled banks.  Citigroup, for instance, raised about $20 billion from a consortium of SWFs from Abu Dhabi, Kuwait and Singapore.  UBS secured nearly $10 billion from a Singapore fund that now controls 9% of the bank.  Merrill Lynch took in about $11 billion from SWFs from Kuwait, Singapore and South Korea.  And even august Morgan Stanley got $5 billion from China's SWF.”

National Autonomy For Sale

The Federal Reserve’s strategy for softening the recession has been to keep interest rates artificially low.  But when money is cheapened, its credibility’s also cheapened.  Thus, it takes more to buy less.  And in the case of oil, it takes much more dollars to buy much less.

By making money cheap, the Federal Reserve has increased and accelerated the amount of dollars piling up in the coffers of SWFs.  As the dollar loses value and oil increases in value, the wealth being transferred to oil producing nations swells.  And when an SWF injects money into a troubled bank, it may help keep the bank solvent in the short term, but the ultimate outcome is the SWF gains in ownership.

Just last week, New York’s historic Chrysler Building was sold to a SWF based in Abu Dhabi.  And we found over the weekend that America’s largest beer company, Anheuser-Busch, is being taken over by a foreign company from Belgian.

What are all the ramifications of the ongoing selling of the USA to other nations?  We don’t know.  But the loss of national autonomy is one of them.      

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  As we reported on Friday, IndyMac had taken a beating.  And over the weekend IndyMac was seized by Federal Regulators.  On Monday, it was a scene out of the 1930’s, as hundreds of depositors lined up outside to get their money.  We believe there are many more bank failures to come.  And that is why you must read the Free Report - Learn How to Find a Safe Bank.  Inside, our friends at Elliot Wave International cover everything from risky banking conditions, how the FDIC can’t really insure your money, the top 100 safes U.S. banks, how you can choose a safe bank, tips on international banking, and much more.  Get it all for free right here: Learn How to Find a Safe Bank.

 

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