Niall Ferguson: Sale of the Century
[Niall Ferguson is a professor of history at Harvard University and a professor of business administration at the Harvard Business School.]
In my favorite spaghetti western, The Good, the Bad and the Ugly, there is a memorable scene that sums up the world economy today. Blondie (Clint Eastwood) and Tuco (Eli Wallach) have finally found the cemetery where they know the gold is buried. Trouble is, they’re in a vast Civil War graveyard, and they don’t know where to find the loot. Eastwood looks at his gun, looks at Wallach, and utters the immortal line: “In this world, there are two kinds of people, my friend. Those with loaded guns … and those who dig.”
In the post-crisis economic order, there are likewise two kinds of economies. Those with vast accumulations of assets, including sovereign wealth funds (currently in excess of $4 trillion) and hard-currency reserves ($5.5 trillion for emerging markets alone), are the ones with loaded guns. The economies with huge public debts, by contrast, are the ones that have to dig. The question is, just how will they dig their way out?...
The U.S. needs to do exactly what it would if it were a severely indebted company: sell off assets to balance its books.
There are three different arguments against such asset sales. The first concerns national security. When Dubai Ports World bought the shipping company P&O in 2006—which would have given it control of facilities in a number of U.S. ports—the deal was killed in Congress in a fit of post-9/11 paranoia. The second argument is usually made by unions: private or foreign owners will be tougher on American workers than good old Uncle Sam. Finally, there’s the chauvinism that surfaced back in the 1980s when the Japanese were snapping up properties like Pebble Beach. How could the United States let its national treasures—the family silver—fall into the hands of inscrutable Asian rivals?
Such arguments were never very strong. Now, in the midst of the biggest crisis of American public finance since the Civil War, they simply collapse....
Read entire article at Newsweek
In my favorite spaghetti western, The Good, the Bad and the Ugly, there is a memorable scene that sums up the world economy today. Blondie (Clint Eastwood) and Tuco (Eli Wallach) have finally found the cemetery where they know the gold is buried. Trouble is, they’re in a vast Civil War graveyard, and they don’t know where to find the loot. Eastwood looks at his gun, looks at Wallach, and utters the immortal line: “In this world, there are two kinds of people, my friend. Those with loaded guns … and those who dig.”
In the post-crisis economic order, there are likewise two kinds of economies. Those with vast accumulations of assets, including sovereign wealth funds (currently in excess of $4 trillion) and hard-currency reserves ($5.5 trillion for emerging markets alone), are the ones with loaded guns. The economies with huge public debts, by contrast, are the ones that have to dig. The question is, just how will they dig their way out?...
The U.S. needs to do exactly what it would if it were a severely indebted company: sell off assets to balance its books.
There are three different arguments against such asset sales. The first concerns national security. When Dubai Ports World bought the shipping company P&O in 2006—which would have given it control of facilities in a number of U.S. ports—the deal was killed in Congress in a fit of post-9/11 paranoia. The second argument is usually made by unions: private or foreign owners will be tougher on American workers than good old Uncle Sam. Finally, there’s the chauvinism that surfaced back in the 1980s when the Japanese were snapping up properties like Pebble Beach. How could the United States let its national treasures—the family silver—fall into the hands of inscrutable Asian rivals?
Such arguments were never very strong. Now, in the midst of the biggest crisis of American public finance since the Civil War, they simply collapse....