Wholly owned subsidiary

David Ignatius writes in today's WaPo that he thinks the furor over the Dubai deal is racist "the hubbub over terrorism isn't the biggest problem with the Dubai flap."

..The real absurdity here is that Congress doesn't seem to realize that an Arab-owned company's management of America's ports is just a taste of what is coming. Greater foreign ownership of U.S. assets is an inevitable consequence of the reckless tax-cutting, deficit-ballooning fiscal policies that Congress and the White House have pursued. By encouraging the United States to consume more than it produces, these fiscal policies have sucked in imports so fast that the nation is nearing a trillion-dollar annual trade deficit. Those are IOUs on America's future, issued by a spendthrift Congress.

The best quick analysis I've seen of the fiscal squeeze comes from New York University professor Nouriel Roubini, in his useful online survey of economic information, rgemonitor.com. He notes that with the U.S. current account deficit running at about $900 billion in 2006, "in a matter of a few years foreigners may end up owning most of the U.S. capital stocks: ports, factories, corporations, land, real estate and even our national parks." Until recently, he writes, the United States has been financing its trade deficit through debt -- namely, by selling U.S. Treasury securities to foreign central banks. That's scary enough -- as it has given big T-bill holders such as China and Saudi Arabia the ability to punish the U.S. dollar if they decide to unload their reserves.

But as Roubini says, foreigners may decide they would rather hold their dollars in equity investments than in U.S. Treasury debt. "If we continue with our current patterns of spending above our incomes, by 2013 the U.S. foreign liabilities could be as high as 75 percent of GDP and an increasing fraction of such liabilities will be in the form of equity," he explains. "So, let us stop whining about the dangers of unfriendly foreigners owning our firms and assets and get used to it."

Here's how bad it is: The worst thing that could happen to the United States, paradoxically, would be for Arab and other foreign investors to take us at our xenophobic word and decide that America doesn't really want foreign investment. If they pulled out their money, U.S. financial markets would plummet in a crash that might make 1929 look like a sleigh ride...

Oops.  We're in trouble. 

But look at the Dubai deal this way:  for many of us it's not about racism or xenophobia but about how the Administration (and Congress) handled a deal.  A behind-doors contract with United Arab Emirates was bound to get a big reaction from everyone from the guy at the end of the bar right on down to the New York Times.

It's about process.  It's about the details of the contract.

With a huge trade deficit and increasing national debt, even the most stalwart Bush supporters are bound to question why we put an illegal war -- which we've lost -- on America's credit card.  At least, that's what the guy at the end of the bar is asking when he's not drowned out by Fox News, turned up loud.

Comments

[david]

Sad, but very true.