March 17, 2008
A bad time for the US to annoy foreign investors
I usually find Ambrose Evans-Pritchard of the Telegraph a bit excitable but this piece (via Yves Smith) on the aversion of foreign investors to buying US Treasuries struck a chord.
The other day, I listened to a New York financier bemoaning the furor in the US about investments by sovereign wealth funds in US financial institutions. His argument was that SWFs have a choice about where to invest and the US is in no position to be fussy. It needs the capital.
He went on to point out that SWFs are sister organisations to central banks and are often headed by members of the same families in Gulf and Asian countries. If the US annoyed SWFs too much, he suggested, some of the central banks that buy Treasury bonds would stop doing so, with nasty consequences for the dollar and the US economy.
I am reminded of that point by Mr Evans-Pritchard’s piece. On the face of it, it would be stupid for any investor to act on emotion rather than according to financial principles. There is no logical reason why a fuss in Congress over SWFs’ equity investments in the US should lead to foreign investors boycotting Treasuries.
But the financial world does not always work on strict logic, as behavioural economists tell us. I wonder whether my New York financier was speaking with some inside knowledge of the mood abroad?
evan andersen
It is amazing that there is some sort of financial nationalism that has entered into the ‘washington consensus.’ There is no need for a kind of conspiritorial defence for having economies of the Mid-East invest into our treasuries. The US has a solid AAA product, and that is its economy. Evan Andersen thinks that keeping the SWF outside the US will only hamper the long-term AAA rating if we are descriminating against foreign money. Honestly, what is congress’ worst fear, that the Mid-East is somehow then going to control votes in America or somehow disadvantage citizens. I would like to see proof before a boycott.
evan andersen
Posted by: evan andersen | March 18th, 2008 at 12:02 pm | Report this comment