Geoff Colvin With Some Solemn Thoughts

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Geoff Colvin With Some Solemn Thoughts

By JLP | February 12, 2008

From the latest issue of Fortune comes America For Sale: Foreign Buyers Are Grabbing U. S. Assets by Geoff Colvin. As the title suggests, the article addresses foreign ownership of U. S. Assets. This part of the article really bothers me:

But here’s why the trend is troublesome, and more so now than ever. According to the Bureau of Economic Analysis, the rest of the world currently owns way more of America (stocks, bonds, real estate, etc.) than America owns of the rest of the world, by a margin of $2.6 trillion (as of year-end 2006; a 2007 figure is due in July and will be larger). Net foreign ownership is increasing very rapidly; it has multiplied by a factor of five in just the past decade. As it grows, we must send more dividends and interest to foreign owners, giving them more money with which to buy more U.S. assets, earning more dividends, and so on.

This compounding effect is small when net foreign ownership is low, but at today’s levels the effect is becoming significant and ever harder to reverse. Where it leads is grim: As a nation we eventually cease to be capitalists and become simply wage earners. As Warren Buffett put it in a prophetic Fortune article more than four years ago, a country that goes too far down this road can be “colonized by purchase rather than conquest.”

We, as a country, NEED to start saving some money! That’s all there is to it. We can’t keep spending everything we make (or even worse, spending MORE than we make).

I don’t know about you, but I don’t like where this country is heading. Unfortunately, all this will probably come to a head when I’m close to retirement! LOL!

Topics: Miscellaneous |

Comments to “Geoff Colvin With Some Solemn Thoughts”

Ernesto@InsuranceYak.com Says:
February 12th, 2008 at 3:54 pm

I feel your frustration. Unfortunately, to reverse the trends we’ve started would require vision, a policy behind the vision and the ability to follow through on the policy. What we have instead are ideology, lack of accountability and a short attention span.

You want Americans to spend less and save more? Our own Government can’t even set a good example. $9 Trillion in debt and deficit of $500 Billion a year. Americans are spending less? That’s terrible, let’s print checks and give everyone $600. What’s in it for me? How much do I get? So what if we have to borrow the money from foreigners and the dollar drops some more.

Every government on the planet orients its monetary policy towards protecting their own job and best interests; except ours. In fairness though, I don’t think we really have a monetary policy. Just reactions to today’s headlines.

deleront Says:
February 12th, 2008 at 4:17 pm

“This part of the article really bothers me…”

…is it the ‘foreign-ownership’ that really bother you, or America borrowing so much money ?

Ultimately, foreigners can only spend those Dollars they hold — in America. Borrowing money from ‘foreigners’ is basically no different from borrowing within the U.S.

If you’re worried about foreigners taking over America politically by buying all our factories (?)– relax… foreigners can’t vote here.

And Americans can’t save more money while their government consumes it faster than it can be saved.

(When do you expect the U.S. National Debt to be paid off ??)

Fred Says:
February 12th, 2008 at 4:40 pm

Read this:
http://www.theatlantic.com/doc/200801/fallows-chinese-dollars

Andy Says:
February 12th, 2008 at 5:35 pm

This makes no sense. Foreign investment in the US is extremely *good* for our economy. It’s *good* that this is growing. Any other country would kill to have as much foreign investment as the US gets.

Part of the reason our economy has been ok despite the housing/credit problems is increasing exports and foreign investment because of the weakening dollar.

So what if America doesn’t own everything anymore?

dawn Says:
February 12th, 2008 at 5:42 pm

Thought provoking piece…
Our founding forefather’s must be rolling over in their graves, at the path our country is presently on. It’s our own fault, and we need to wake up to the realities of what we have gotten ourselves into. We as a people, need to adhere to the once basic & common principles we’ve lost, like save - invest - and limit credit use.

Adam Says:
February 12th, 2008 at 6:08 pm

Wow deleront, that is a very simplistic and ultimately inaccurate view of what JLP was trying to convey. It has nothing to do with foreigners meddling in politics and especially not their inability to vote here. Considering the fact that we all learned that a foreigner can not vote here in elementary school, I highly doubt financial writers would overlook this fact. As for what the point really is, and I think Andy might have missed this as well, is if the typical and traditional game pieces of capitalism, such as real estate and business ownership, is taken out of direct play in our inner circle, then they really become nothing more than a way for outsiders to tap the potential out of our economy. With more and more money flowing out and less being saved in order to be put back in (through ownership), as JLP said, we become nothing more than wage earners.

Beth Says:
February 13th, 2008 at 7:43 am

I think one of the recent Presidential candidates (I don’t recall which one) said it best…if we (as a country) expect our residents to save money and relieve their own, personal debt…then we (as a government) must do the same and expect no less from ourselves. As individuals, we’ve over consumed and continue to do so…if we don’t have all of these ‘things,’ then we pout (in general). However, we must turn this around and learn to be grateful and appreciative of what we do have…back to the basics of Freedom, Love, Pride, etc. We need the ‘things’ that our country was founded on…not the ‘things’ of today’s world.

JLP Says:
February 13th, 2008 at 9:22 am

Beth,

I don’t know who said it but they left out the important details:

1. Do we cut spending? If so, where?

2. If we don’t cut spending, do we raise taxes? If so, how much and who’s impacted.

CD Rates Blog Says:
February 13th, 2008 at 9:32 am

Innocent ownership isn’t a bad thing, but it would be better if we owned more ourselves. Of course that would take discipline, which we sorely need.

Ownership with nefarious goals is another matter. But that is very hard to protect against.

Foreigners may not be able to vote, but if they hold enough of a company they can certainly apply pressure.

Our weakness is also our strength. Great things have been accomplished by being mostly an open nation. Potential for great harm is unfortunately the trade off.

Frank Says:
February 13th, 2008 at 9:41 am

Another interesting column! These trends are not new, they have been in place for a very long time. What makes anyone think they are going to change? What would it take to get people to change and care? Some argue they will not… that the present course is set. Some argue that it will take shocking events to get people to change and some argue that people will change even then, only if they have the will. Is this a time when America should be watching it’s back and preparing for an intensely comepetitive future? Do you see America doing that? As an example, look at Warren Buffet and Bill Gates… their philanthropic news is as popular, if not more so, than their wealth building activities. Could their business ventures be nothing more than a tax scheme or redistribution scheme… collect money from American consumers and give it away on social causes (and not necessarily to US causes) the same way the US government does? I read an article recently about the number of employees that Buffetts businesses employ and the profits they generate per employee. Is our nation so concerned about leveling economic equality that it has lost its edge? Could it be that long held policy is what is really hurting America? What do these things say about allocation of resources and capital and wealth? Is the tide going out for the USA? Has American lost it’s will? We do not seem to have much will when it comes to saving or energy conservation and oil dependence… we shall see.

As usual, thanks JLP and all for posting your thoughts. You usually have some very thought provoking posts!

Beth Says:
February 13th, 2008 at 9:51 am

JLP,
If I recall correctly, I don’t believe they gave any specifics. However, I still felt the message was strong and sincere. At least someone in politics is thinking along the ‘right’ path. There are numerous implications no matter which direction we go. Either way, our country needs to learn how to produce and use what we have at our disposal…and not rely on others so frequently. As consumers, the mindset needs to be re-taught in regards to how we live. That’s where the ‘getting back to the basics’ comes into play.

Fred Says:
February 13th, 2008 at 11:12 am

JLP,
Isn’t there a third option, that is, to grow the pie?

JLP Says:
February 13th, 2008 at 11:18 am

Fred,

Yes, you are correct. Growing the pie would be the best answer.

I don’t think raising taxes is the answer. I WISH President Bush would have had the guts to cut spending when he cut taxes. I would be willing to bet that there’s A LOT of fat that could be cut from the budget. Nobody wants to do it though because it’s unpopular.

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Geoff Colvin With Some Solemn Thoughts