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I have been writing about sovereign wealth funds on and off for months. I warned about the possible political ramifications of having foreign countries heavily invested in the United States and the political leverage that might lead to. I quoted a New York Times story about the reluctance of the US to press China too hard during the Olympic buildup period for fear of antagonizing a friendly investor. Larry Summers, (who was not the Secretary of the Treasury at the time) shared my concerns, or I should say, I shared his, and he said months before he was to become part of this new administration’s cabinet, that he would keep a watchful eye on that particular situation. (www.huffingtonpost.com/2008/10/27/obamas-treasury-secretary_n_138195.html)

It is beyond ironic to me the way things are turning out. The current bailout has a possible price tag of nearly one trillion dollars. (www.nytimes.com/2008/09/21/business/21draftcnd.html) This at a time when national deficit in the United States is currently ten percent of the GNP. Very little is being said about where that money is going to come from. There is a constant footnote to anything TARP (bailout) related that the cost would be passed on to the American taxpayer. That is all well and good for the long term, but what about the short term? It seems that the US is counting heavily on foreign investments to fund a lot of this recovery money.

But how likely is this to happen? Much was made of China’s investment in Morgan Stanley in December, 2007. (www.iht.com/articles/2007/12/19/business/morgan.php) I am curious to know how much that investment is currently worth to China. I am fairly certain that it is worth at least one third less than what was originally invested. How eager will China be to return to the US for further investment? The situation may be worse in the oil producing countries. Sovereign wealth fund investment in the US by the United Arab Emirates is well into the tens of billions of dollars. With the price of oil under fifty dollars a barrel, (down from a high of nearly $150 a barrel in July, 2008) how eager are those countries to invest in the US? And if they still have full confidence in the strength of the US dollar, where will they get the money to invest?

This is an intriguing turn of events. The United States has gone form a cautionary

be careful of foreign investors

to an increasingly more desperate,

where are the foreign investments?

in one short year. George Washington in his farewell address to the nation warned that a

passionate attachment of one nation for another produces a variety of evils.

http://avalon.law.yale.edu/18th_century/washing.asp . Before the United States relies too heavily on the opinion of the specialists on this matter, I would like to remind them of George Bernard Shaw’s caution that

If all economists were laid end to end, they would not reach a conclusion.

The current financial crisis is becoming more complicated than a Russian novel, and every bit as intriguing.

By Myron Gushlak