An introduction to the revolutionary new, quick-to-grasp 100 page book
MYTH FIVE
FOREIGNERS FINANCE AMERICA
- the “bad” foreigner not only has given us a deficit, but holds the Sword of Damocles over us by funding it..
Another consequence of the mercantilist mindset is that because Americans don’t save, their trade deficit only can be financed by foreigners. This creates an emotional mindset of vulnerability, allowing protectionist politicians insidiously to blame the foreigner for America’s ills. In reality, Americans themselves – such as the foreign subsidiaries of US multinationals - own huge portions of America’s federal government debt offshore. So which “foreigner” holds U.S. government debt? Anyway, what would “the foreigner” gain by “yanking” their investments out of America? Selling them at a lower price? Finally, where could “the foreigner” re-invest these funds on the same scale? Every school child knows that America not only has the most sophisticated financial markets; moreover, hers are larger than all the other major capital markets combined.
NOW READ THIS SLIM BOOK…..
This book is trenchant, iconoclastic – and deliberately 100 pages long, making it a quick read. Globalization truly has left trade balances behind and when studying trade flows and thus trade policy, policymakers are ignoring the increasingly vital role of multinational corporations at their peril. Globalization is changing paradigms by the day, so we urgently need to challenge conventional myths, or lose the plot: when protectionist politicians irk the politician-bosses of those countries hosting profitable MNC operations, the parent MNC’s very existence is threatened. So why do such MNCs keep financing the pernicious sophistry of such protectionist politicians?
While the immediate aim is to reach decision makers, particularly those in America, Europe, Japan and China, the broader objective is to move thinking away from geographical trade balances and instead towards global trade balances.
Most of all, as Professor Alan Blinder states in one of his essays, my main purpose is “to get as many smart people as possible thinking creatively about the problem.
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1. Greenspan, Alan, The Age of Turbulence: Adventures in a New World, The Penguin Press, New York, 2007, p.354
2. Blinder, Alan S., Fear of Offshoring, CEPS Working Paper No. 119, Princeton University, December 2005, p. 21
