[seahorse]

Yes Mr. Bill, my biggest fear, being an American, is that we suffer the same fate as Argentina. I see us stumbling along that same path, and unfortunately, don't see us going anywhere else.

Not only does the US have unsustainable twin deficits, but it appears the hungry powers of the east, SCO, and their sovereign wealth funds will begin gobbling up everything of any value here. What resources we have left are still very valuable to others.

Here's the post I made linking a very good article about financial power moving out of the US. As you say, no one will rescue the US as they did Argentina. I best, they will gobble us up.

TF,

This is very true. It is the final phase of "outsourcing." Let's see if the boys on Wall Street will continue to talk up "globalization" as much as they did the last few years when we lost all our manufacturing jobs.

For more about this very topic, which essentially is a shift of economic power from west to east, there is a good article posted here:

$this->bbcode_second_pass_quote('seahorse2', 'F')inancial power moving to Russia and China, and the trend is being exacerbated by the US financial crisis which is allowing foreign sovereign wealth funds to buy, consolidate, etc US financial interests.

$this->bbcode_second_pass_quote('', 'I')ncreasing liquidity in foreign financial markets is contributing to a shift in global power, especially as foreign investors step in to recapitalize the slumped U.S. economy, according to a global economics report.

[MrBill]

seahorse I liked that article, but didn't agree with all the conclusions. But I do think that western powers have somewhat under-estimated sovereign wealth funds.

They can be a benign investor such as Norway's oil & gas fund, but there is absolutely no guarantee what so ever that they will be such good corporate citizens.

Theoretically they should behave like any shareholder and look to maximize their return by running the companies well that they buy. Technically they should not go around destroying value. However, that is theoretically and technically.

The equivalent of modern day gun boat diplomacy would be for foreign governments to buy into strategic industries - to such an extent that they are allowed by law that is - and then demand changes by threatening to pull the plug the company. I am not sure how successful such a strategy would be - and maybe it is being paranoid - but in one industry towns or regions that may an effective threat.

Certainly governments are prone to giving into special interest groups and corporate blackmail, so I do not see why we would disregard the possibility that a strong China might deny access to a certain market if so and so does not make the changes they feel they deserve. They certainly have been successful at scarying any country that wants to do business in China from recognizing Taiwan or complaining about human rights in Tibet. They even get bent out of shape when someone dares to have a meeting with the Dali Lama like Angela Merckel did last month.

I think lawmakers should be reviewing foreign investment laws and possibly making changes to bar majority control of publicly traded companies by foreign governments or their agents. It is better to address this issue early rather than wait until the Barbarians are at the gate to avoid the charge of protectionism and using a double standard. That goes for Canada, too! ; - )

[cube]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('mattduke', 'I') wish the government had never built the interstate highway system. How much differently would we have organized our society without it?

[Popeman]

Cube - all anybody needs to do to understand whether the DOT needs more funding is look at the average work crew on the side of the road.

4 guys holding walkie talkies and signs.
3 guys operating heavy equipment.
2 guys walking around trying to look busy.
6 guys making sure their shovels stay upright.

It's all a sad joke. We had a section of pipe patched in our area by the state DOT. I went over to take a look. There's about 7 guys on the crew. What a big joke.

The point I'm making is that everything having to do with the govt is inefficient.

The model is completely wrong.

Someone wrote:$this->bbcode_second_pass_quote('', '"')Popeman, you Communist- Capitalist world view is incredible simplistic!
Every state needs taxes because there are always means which are owned as a community like railways roads bridges hospitals schools.
You would really prefer taking your money and share it with no one and caring only for yourself and you family? Hope that no one gets in trouble!"

[LoneSnark]

$this->bbcode_second_pass_quote('', 'T')heoretically they should behave like any shareholder and look to maximize their return by running the companies well that they buy. Technically they should not go around destroying value. However, that is theoretically and technically.

The equivalent of modern day gun boat diplomacy would be for foreign governments to buy into strategic industries - to such an extent that they are allowed by law that is - and then demand changes by threatening to pull the plug the company. I am not sure how successful such a strategy would be - and maybe it is being paranoid - but in one industry towns or regions that may an effective threat.

[MrBill]

LoneSnark, if we were speaking about businesses with low barriers to entry and exit then you would be right.

However, if the Chinese bought-up the Alberta tarsands, for example, they would have a strategic global advantage, and unless Alberta or Canada were willing to re-nationalize that investment and face the consequences the Chinese would be free to either run this business in a sustainable or unsustainable, in an environmentally or non-environmentally friendly, manner or not.

China prefers to invest in cestpools like Venezuela as opposed to Canada because there is not the same degree of control. And politicians are more pliable.

You're wrong. It does matter. Any limited liability company can strip assets at will, close-up shop, and walk away no matter what long-term liabilities they create. If they get sued or penalized by the government they can simply declare bankruptcy.

Laws need to be carefully crafted ahead of time because majority-owned firms controlled by foreign states are not the same as private shareholders. For example, the only reason China has so much money to invest abroad is because the PBOB buys-up foreign currency in the open market by printing its own yuan. No private company or investor could do the same thing.

There is absolutely no reason to privatize domestic industries only to see them fall into foreign government hands. It does matter. Drop your blinders. This is reality and not theory! ; - )

[LoneSnark]

Yes, and in reality the Chinese are not magicians. If it is in their interest to run the Canadian tar sands unsustainably why is it not in the interest of some Canadian firm? A domestic firm can just as easily declare bankruptcy. Every problem you list applies just as strongly to domestic limited liability corporations. I would argue they apply even more so, since a Chinese firm actually has to worry about how its reputation affects the Chinese government. An Albertan firm must worry about no such thing.

All the problems you list are very real conflicts of interest and the Canadian government must address them to prevent LLC A from harming plaintiff B. But it does not matter who LLC A is, regulations must be passed and enforced to prevent everyone from wrecking the environment, be they Chinese, American, or Albertan.

A truely free country does not require pliable politicians. China invests in Venezuela because no one else will, not because they cannot invest in Canada, especially when they have.

Now, what global advantage would they have? They can turn natural gas into oil; what can they do strategically with that? Jack shit. Oil is a fungible commodity, if the Chinese firm insists on exporting all the oil it produces in Canada to China it is only hurting itself. The oil going to China will simply displace oil that would have been bought elsewhere, say from Saudi Arabia. The world price for oil should remain unaffected. If it stops production then the world price for oil would rise, harming the oil importing Chinese an equal amount to if they had turned off the taps in northern China. Chinese investors would lose the oil revenue and Chinese consumers would pay more (the world price) for oil.

And why does it matter where their money came from? These Chinese firms did not print dollars, they printed Yuan, ripping off the Chinese people and anyone else holding Yuan. While the money may be morally tainted such accusations apply to any country with a lender of last resort capable of just printing the domestic currency. Should American firms also be excluded from the Canadian tar-sands? What about Canadian firms with their Bank of Canada?

This is a debate Mr Bill, and in my opinion you need a good reason to exclude an investor from your country, because you never know when the alternative to another investor is closure. If it were not for foreign car makers opening up factories in Kentucky and Tennessee then the U.S. would might not have a car industry today, we would be almost completely dependent upon imports.

While it might make sense for Americans to not be making cars, there is no doubt such an eventuality would have been artificially created by halting the free flow of capital to its owners most valued uses. If owning oil wells in Canada makes the Chinese feel good then they paid top-dollar for that right, let them enjoy it. The company they bought the wells from may put the money towards research which makes oil obsolete, we never know.

[MrBill]

No, I will have to address this argument tomorrow. Otherwise my good wife will kill me. I cannot risk such an outcome with this argument as of yet unresolved! ; - )

Basically, if you understand NIMBY, then you will recognize the argument that you may behave otherwise not in your backyard than you would at home.

Also, when China is willing to tolerate 10 of the world's top 20 polluted cities in China, why would they care about environmental damage in Canada?

Being from Calgary, AB, I certainly know that Esso and other US/Canadian firms certainly 'used' to invest in VZL. It is untrue to say that the Chinese do because no one else will! It is ALL about pliable politicians. Namely that the Chinese get VZL oil for approximately $3 a barrel cheaper than market price.

I will not get into politics, but there is a cost of giving the USA a political black-eye and that is what Chavez is doing. He probably even believes he is buying Chinese loyalty? HAHA! The joke is on him! ; - )

[vision-master]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('alokin', '
')Popeman, you Communist- Capitalist world view is incredible simplistic!

Every state needs taxes because there are always means which are owned as a community like railways roads bridges hospitals schools.

You would really prefer taking your money and share it with no one and caring only for yourself and you family? Hope that no one gets in trouble!

[LoneSnark]

$this->bbcode_second_pass_quote('', ' ')Also, when China is willing to tolerate 10 of the world's top 20 polluted cities in China, why would they care about environmental damage in Canada?

[MrBill]

$this->bbcode_second_pass_quote('LoneSnark', '')$this->bbcode_second_pass_quote('', ' ')Also, when China is willing to tolerate 10 of the world's top 20 polluted cities in China, why would they care about environmental damage in Canada?

[LoneSnark]

MrBill, again, you have not provided any good reason to exclude soverign wealth funds from Canada. All you have is a conspiracy theory about the Chinese government threatenning to keep Canadian companies out of China if the Canadian government does not let Chinese investors violate Canadian law.

That is not an argument against Chinese investors, it is an argument against special treatment, treatment I question whether Canada can even provide. The Canadian Parliament, unlike the Chinese Congress, does not have the authority to override court decisions, so if a Chinese firm finds itself being prosecuted for breaking the law no amount of high level politicing can stop it. And even if it did, some Judge or prosecutor plays golf with the PM let's say, Canada's free press would be all over it, and the politicians would find themselves likewise being prosecuted for corruption.

What it boils down to is this: you want Canada to pass a new law in hopes that it will stop people from breaking an earlier law. Which is absurd, just enforce the earlier law and everyone gets to play nice. And if they are able to break the earlier law and get away with it, what makes you think a new law will work?

[MrBill]

Okay, I have in fact laid-out several arguments. I do not have the time to re-iterate those arguments. A new law covering majority control of a public firm by a foreign government would be a new law and not be covered by existing laws except that the anti-monopoly authorities have a right to review stratetgic investments. Its not a law banning investment, but a review process. I could give numerous examples of tit for tat political responses to unfair trading cases brought before the WTO, but to be honest I cannot be bothered today. So you win! ; -)

[LoneSnark]

You have laid out several arguments, and I shot down every one of them. Every single 'bad outcome' you gave is already being prevented by existing laws, so a new one is not necessary.

Of course, the one you just now gave (monopoly construction) is not handled by existing law as existing law on this subject is arbitrary and completely political, making it the only instance you have suggested where a foreign firm might gain from bringing political pressure.

And that some nations engage in unfair trading practices is irrelevant: usurping the property rights of your own citizens by reviewing who they can or cannot sell their property to is wrong, I would even say unconstitutional. Not that it matters, our government does it anyway. We do live in a morally bankrupt world, afterall.

So, you have not given several arguments, you have given one. And this one is so unlikely I think it can be ignored: what are the odds that the Chinese could buy their way into ownership of a true global monopoly? Pick any product and they would need to buy up the entire world's supply, and even then it would not be able to stop new firms from entering. I realize it is a separate subject, but I don't find monopolies a reasonable fear in a globalized world.

[MrBill]

Anti-monopoly authorities being slopply shorthand for the competition watchdogs that review foreign investment and mergers or acquistions that might lead to industry concentration or reduced global competition. Clearly this is within their mandate as a Federal agency and does not violate any constitutional rights. That is why we have elected officials and their agents.

$this->bbcode_second_pass_quote('', ' ')The motives of the sovereign moneymen could be sinister: stifling competition; protecting national champions; engaging, even, in geopolitical troublemaking. Despite their disruptive market power, their managers have little accountability to regulators, shareholders or voters. Such conditions are almost bound to produce rogue traders.

[LoneSnark]

Clearly yes, MrBill, our government agents agree with you. As I said, "Not that it matters, our government does it anyway. We do live in a morally bankrupt world, afterall." That our government is already doing something does not make it right, justified, or even necessary.

And just because the Economist magazine says there could be a problem of soverignty does not mean there is. Whatever credibility you allow the Economist, the magazine itself pointed out that whatever problems foreign ownership might present are swamped by more important matters, such as solvency. It then concludes with techniques for preventing nationalists and protectionists, such as yourself, from taking control. So, clearly, the Economist agrees with me that equity markets should remain free and global. So, thanks to your own link, you must now argue your case against both me and the Economist.

[cube]

$this->bbcode_second_pass_quote('LoneSnark', '.')..
And just because the Economist magazine says there could be a problem of soverignty does not mean there is. Whatever credibility you allow the Economist, the magazine itself pointed out that whatever problems foreign ownership might present are swamped by more important matters, such as solvency.
...

[MrBill]

My concerns are apparently shared by others as well. That does not make us right, but it is correct to raise these concerns before they do become an economic or political problem.
$this->bbcode_second_pass_quote('', 'G')rowing concerns
Despite the many beneficial effects of petrodollars in increasing global liquidity and spurring the growth of various financial-asset classes throughout the world, the rise of investors in oil-exporting countries has created concerns.

One worry is that the huge size of petrodollar sovereign wealth funds, coupled with their relatively high appetite for risk, could make global capital markets more volatile. The limited transparency of these funds amplifies the anxiety. Our research, however, finds that their investment portfolios are widely diversified not only across asset classes and regions but also through a number of intermediaries and investors. Diversification reduces the risk that the funds could make financial markets more volatile. Moreover, petrodollar investors have a track record of sensitivity about the broader market impact of large flows and use derivatives and intermediaries to lessen it. ADIA, for instance, reportedly invests 70 percent of its funds through external asset managers—intermediaries who know they must move slowly in markets to avoid adverse price adjustments. Direct petrodollar investors tend to adopt a relatively low profile.

A second concern has also attracted growing attention among financial-market regulators in Europe and the United States: the prospect that sovereign wealth funds could use their growing financial heft for political or other noneconomic motives. The rise of large government investors in financial markets is a new phenomenon—and one at odds with the shrinking role of state ownership in real economies. Given the limited transparency and enormous size of these investors, some observers question the motivations underlying their investment strategies. How will state investors behave as public shareholders or owners of companies in foreign markets? Will they seek to maximize value creation and long-term growth, or will their investments reflect the political objectives of their governments and the interests of businesses in their home countries? Financial markets require the free flow of information to function efficiently. The presence of huge, opaque players with noneconomic motives could distort the pricing signals that other investors need. A growing number of economists and policy makers in Europe and the United States now support the creation of disclosure standards for government investors.

Most sovereign wealth funds have historically invested at least part of their assets through external managers, which should help ease these anxieties. To the same end, it would be in the funds’ interest to increase their voluntary disclosures about their size, investment objectives, target portfolio allocation, and internal risk-management and governance procedures; this information would allow well-managed funds to stand out and demonstrate a spirit of cooperation. Some observers consider Norway’s Government Pension Fund a model because it makes its asset allocation, investment criteria, and investments available to the public on its Web site.

Regulators in Europe and the United States should ensure that they base any policy decisions about the activities of sovereign wealth funds on an objective appraisal of the facts. It will be essential to differentiate between the direct acquisition of corporations by state-owned enterprises and by government investment companies in oil-exporting regions, on the one hand, and the passive investments of sovereign wealth funds in debt and equity markets, on the other. Sovereign wealth funds typically hold a diversified portfolio of assets in public debt and equity securities rather than large stakes in foreign companies.

A final concern: the long-term economic impact of higher oil prices. In the 1970s their rise sparked inflation in the major oil-consuming economies and sent global banks on a petrodollar-fueled lending spree in Latin America. Both developments inflicted significant economic pain on the countries involved. Today higher oil prices have been a boon for global financial markets, but, paradoxically, inflation hasn’t risen very much. Can higher oil prices really be good for the world economy? As we have seen, petrodollars are creating inflationary pressures in markets for illiquid investments, such as real estate, art, and companies. If the pressures move beyond those markets, the potential asset price bubbles could burst. So far the world economy has accommodated higher oil prices without a notable rise in inflation or an economic slowdown, but this may change in the future.