Fed Policy Provides Stimulus for Companies to Invest Outside the United States
The Federal Reserve decision to buy over $500 billion in U.S. Treasury notes is stimulating investment, but not in the United States.
Companies such as Southern Copper, PepsiCo Inc., Dell and Wal-Mart have made plans for overseas purchases and expansion. “All the Fed can do is create liquidity,” Tim Hoyle, vice president at Haverford Investments said. “The Fed has no control over how that liquidity is used.”
According to the Commerce Department, in the first half of 2010 there was a $220 billion deficit between U.S. corporations spending in foreign nations and foreign investment in the United States. While Fed policy is working to boost the amount of exports from the United States, it is also accelerating foreign ownership of the United States.
As the United States continues to rack up massive trade and budget deficits, foreign nations are using this leverage to purchase resources, companies and productive assets in this country. “ I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places,” Richard Fisher, President of the Federal Reserve Bank of Dallas, said.
This is a double whammy in that, not only are American companies not using this opportunity to invest domestically and create jobs, but foreign companies and funds are using easy money to buyout the United States.
This continues a trend that has been occurring over the past few decades. While foreign investment has slowed in recent years, most likely due to the United States running out of productive assets for foreign nations to buy, a $220 billion trade imbalance in investment in only six months is nothing to sneeze at.
As the United States continues to struggle to recover from the highest unemployment rates in 26 years due to such behavior, our current predicament is also exacerbating it. With current free trade policies, companies see little desire to invest at home versus in foreign nations. The International Monetary Fund is predicting growth of only 2.3 percent next year in the United States, compared to 9.6 percent in China and 8.4 percent in India.
When policies such as QE2 are initiated, the government must ensure more oversight so that the money is put to its intended use of helping the United States economy instead of helping foreign economies. American taxpayers cannot be expected to support policy that doesn’t create jobs at home.
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