Ben Bernanke’s bold rescue effort is a curious thing. The intrepid team of Lewis & Clark economists conclude: It seems intended to bail out the speculators on Wall Street…and the imprudent borrowers in the housing market…but it merely redistributes the losses onto the people who don’t deserve them – the general population of dollar holders, dollar earners, and dollar savers all over the world.
“What will the foreigners do with all those dollars?” we’ve asked ourselves on more than one occasion. China alone has about a trillion of them. And it is getting more at the rate of about US$1 billion per day. The oil exporters, too, are piling up dollars. And now that the dollar is in the news (it has been falling for 70 years…while few noticed), the foreigners are probably getting edgy. “What to do with all those green pieces of paper?” they must ask themselves.
Well, along comes a headline with the obvious answer:
“Mideast states seize an opportunity,” it says in the International Herald Tribune.
As the dollar goes down, Americans become poorer…and their assets become cheaper. You can pick up things cheaply in the banana republics. People just don’t have much money. So too can you pick up things cheaply in the huge republic north of the Rio Grande, where they don’t even have bananas. Americans have plenty of debt; but they don’t have plenty of money. Ergo, their assets are becoming cheaper and cheaper.
Let’s put two and two together. The foreigners have huge piles of dollars, which are losing value. American industries and businesses are relatively cheap…and getting cheaper and cheaper (in foreign currency terms). Doesn’t it make sense for them to use the dollars to buy American assets?
The Arabs must think so. Few Americans can find Detroit on a map, let alone Dubai, Qatar and Abu Dhabi. Neither geography nor economy are required subjects in US public schools. Not to worry. We have a feeling that they are about to learn a lesson about both. Now, the desert-dwelling moneybags are invading the United States. They are making offers on the NASDAQ, the London Stock Exchange…and the Carlyle Group, a US buyout firm.
China, meanwhile, recently took a big stake in Blackstone (NYSE:BX), another big corporate chop shop. Buying up the buyout firms is a particularly important omen, we think. It allows the foreigners to take up more and more US (and UK) assets without getting their name in the paper. And it allows Anglo-Saxons the soothing flattery of thinking that their assets are becoming more and more sought after…it takes their minds off the sour news, that foreigners are using their mountains of trashy dollars to get control over genuinely valuable assets…and that Americans will increasingly be working for foreigners…
Not that we have anything against foreigners. We love foreigners. We live among them. We have learned their languages and their ways. We can now report this from experience as well as from theory: they are every bit as dumb as Americans.
But we never thought they were dumb enough to sit on their Everests of green paper forever. If the dollar’s keepers won’t protect its value, why should they?
Markets and Money