OK, apologies for the hypey headline … but there’s been too much nonsense lately about who “owns” America, and whether or not we plucky patriots have enough piss and vinegar to take back our own country.
The bottom line is that we should be thrilled that foreign investors “own” us. Not just because global investment is not a simple zero-sum game of borrower and lender — but because the alternative is mighty ugly.
As Alhambra Investment Partners puts it in “Things We Think We Know,” capital is leaving China and searching for safer environs. That America remains the safest place to invest right now speaks a wealth about our economic might — and the importance of us keeping an economy this attractive to foreign capital.
First, let’s consider the stock market. Putting aside the notion that a publicly traded company is inherently open to public investors of all stripes, why should we worry about the makeup of shareholders?
If Chinese investors bid up the stock of Exxon Mobil (NYSE:XOM) or Starbucks (NASDAQ:SBUX) as they plow money into U.S. exchanges, existing shareholders benefit — including employees with a stake in the company.
And presuming they have invested because they believe in the success of these companies, why would they go through the pain of accumulating a large enough voting block to make a difference and then subsequently “sabotage” a stock from within just to teach America a lesson?
It’s a downright crazy scenario.
Next, look at Treasuries. China has not plowed its money into U.S. Treasuries out of a single, burning desire to “own” us. Rather, the large position is part of a long-term currency strategy on their part to bid up the dollar and support U.S. borrowing in an effort to keep their own currency weak.
Their move is self-serving — and if and when the U.S. ever sees a reckoning on its free-spending ways, China will pay a huge price for its massive investment in our sovereign debt. Case in point: The nation steadily cut back on its appetite for Treasuries in 2011 before the debt ceiling debate, out of fear that our debt was too risky.
They are in it for a profit. There’s no conspiracy theory here.
The same is true for China’s recent big-time investment in rock-bottom real estate across the U.S. The bottom line is that there are few options for Asian investors who have a boatload of savings, a risk of high inflation and a rather disappointing selection at home.
If you were a member of China’s middle class with a huge pile of cash, what would you do? From 1994 until 2012, inflation averaged 4.3% in China so you can’t just save it. You also have a dead stock market in Shanghai and the risk of a property bubble at home.
It’s simply capital seeking the best available outlet — and that’s the U.S. right now.
Would we really want to be in the opposite situation, where international investors sit on their cash? Where U.S. investors send their dollars overseas due to a dearth of investments at home?
This argument needs to be made, especially now that Paul Ryan is on Mitt Romney’s ticket with a hankering to scare off global investors. Here’s what Business Insider’s Joe Weisenthal calls “The Silliest Chart You’ll See In The Paul Ryan Debt Plan.”
Joe states rather succinctly — and accurately — that “China has no financial leverage over the US, and the idea of the government having to go beg foreigners in order to spend U.S. dollars is a myth.” He goes on to credit a boom in “global trade, the trade deficit, and the great extent to which foreigners need to recycle a lot of U.S. dollars that they receive.”
In short, the debt sharing is just another economic tie between nations in this age of globalization.
No big deal.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.