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Here's the most amazing
statistic: The United States -- traditionally the
bread basket of the world -- was a net importer of
food in 2005. According to the Census Bureau, in
2005 we exported foods, feeds and beverages valued
at $58.8 billion. We imported food, feeds and
beverages worth $68.1 billion. While food used to be
a major source of export revenues, it's now just
another source of debt, another part of the $726
billion balance-of-payments deficit we suffered in
2005. One result of our $14 billion a week deficit
is that we have devalued our currency. Our dollar is
so weak that according to the CIA it's lost value
against the Albanian leke and the Vanuatu vatu -- as
well as the euro, the pound and the ruble. Because
the U.S. has the largest and most secure marketplace
in the world we have certain advantages unavailable
to other debtor nations. Foreigners readily accept
our cash in exchange for their goods and services so
we're able to trade bits of paper and electronic
credits for cars, petroleum and computers.
Increasingly, though, foreign investors don't want
our cash, they want our assets. Thus, for example,
the Chinese firm CNOOC attempted to buy the Unocal
oil company for $18.5 billion and was blocked while
Dubai-owned DP World acquired a British company that
operated six major U.S. ports, an arrangement that
at this writing also seems to have been effectively
derailed.
The issue here is not whether the collapse of the
Chinese and Dubai deals is "fair" or not.
They're over and done. Instead, the more difficult
question is this: What happens next? Traditionally,
overseas investment has been sought in the U.S. --
but within limits. Quoting the Economist
Intelligence Unit, the 2006 Index of Economic
Freedom published by the Wall Street Journal and the
Heritage Foundation says that "foreign
investments face restrictions in banking, mining,
defense contracting, certain energy-related
industries, fishing, shipping, communications and
aviation." The 2006 report adds that the
"purchase of real estate is unrestricted on a
national level, although purchase of agricultural
land by foreign nationals or companies with at least
10 percent foreign ownership must be reported to the
U.S. Department of Agriculture. Some states impose
restrictions on purchases of land and other types of
investments by foreign companies." Compared to
other countries, says the report, we're an
investors' paradise, tied with Australia as the 9th
most open economy in the world. In comparison, China
is ranked 111th while the United Arab Emirates is
65th and Iran is 155th. The growing problem that we
now face is this: The overseas owners of our debt
will only carry us for so long. Like all investors,
they are always searching for a better return on
their money. To do better they might draw down their
stock of dollars and invest elsewhere; they could
use their excess dollars to purchase U.S. assets; or
they could hold back investing in U.S. dollars until
they got more interest. To a large extent, we would
be smart to sell selected assets. Once foreign funds
are invested in the U.S. we reduce our debt and
increase domestic employment. Historically, we have
welcomed foreign investment in most areas and it has
been very much to our benefit. As to interest, the
decision to buy less U.S. debt would raise domestic
interest rates, including mortgage costs.
Particularly if you need new financing or have an
ARM, what happens overseas is increasingly important
to you. One catch is that foreign holdings of U.S.
dollars may be so huge that overseas owners
effectively cannot sell. A massive sell-off would
make such assets less valuable, thus producing vast
losses and allowing U.S. and other investors to buy
back our debt at discount.
There is, of course, a better way to solve our
balance-of-payments problems then depending on the
decisions of others. Rather than higher interest
levels or more foreign ownership we can start with a
tax on gasoline consumption and mandate higher
levels of fuel efficiency. Such policies will
significantly reduce the flow of dollars going
overseas, provide new government revenues at home,
stimulate now-moribund domestic auto production and
hold down mortgage rates. Right now there is much
talk regarding "energy," but we don't have
a problem with electrical supply, windmills, solar
energy, coal production, ethanol from corn or
nuclear power. Our supply problem, and our key
import problem economically and politically, is with
oil. The time has come to do something about our
balance-of-payments deficits -- while we have a
choice. The choice will be painful, but not as
painful as future choices if we now do nothing.
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