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That's a very well-written and clearly argued piece, but you could apply the same logic to argue that it's a business should not raise capital on the stock mark
by tszyn 11y ago
That's a very well-written and clearly argued piece, but you could apply the same logic to argue that it's a business should not raise capital on the stock market because it amounts to "selling the farm to feed your family". But most businesspeople would say that it's quite OK if the money is invested productively. As the owner of the business, you probably shouldn't care if your equity shrinks to 10% of the company, as long as the outside financing helps you grow it to more than 10 x the original size.
Similarly, it might not matter to Americans if eventually 90% of US-based assets are owned by foreigners, as long as the 10% that's owned by Americans is huge.
So this whole "Our national wealth will soon be owned by foreigners" scenario is probably not as bad as it sounds.
The way Buffett phrases it also seems misleading on a language level. He talks about "foreign ownership of OUR assets". But how can you say they are YOUR assets if they were paid for by foreign investors? If a US company sells 50% of its shares to a German bank, and uses the money to build a plant, can you say "OMG, Germans own 50% of OUR plant"?
- sethev 11y agoIn Buffet's example foreign investment is caused by the trade deficit, not the other way around. The investments are made to protect the transfer of wealth that already took place. In other words, people in other countries are buying US assets with the money that we gave them. This isn't really comparable to selling equity in exchange for money that will be used to invest in future growth.
- tszyn 11y agoThat's true, in his example he makes a point of stressing that the foreign value is consumed rather than invested. But it's not clear that that's what happens in real life. For example, if China sends an excess of resources to "the US", and in return "the US" gives China shares or bonds issued by US companies, then the extra resources are presumably used by these companies in a productive way. (When a company acquires capital on the market, it is usually to invest it.) BTW, it seems to me that foreign investment is always caused by a trade deficit, not the other way around. If the Rest of the World (RoW) wants to invest in the US, it has to acquire dollars. The only way RoW can acquire dollars is to sell more stuff to the US than it buys from the US. In other words, it has to be in trade surplus with the US. So the US has to be in trade deficit.
- omginternets 11y ago>so this whole "Our national wealth will soon be owned by foreigners" scenario is probably not as bad as it sounds. So to be clear: Buffet's solution is still likely to be better?
- tszyn 11y agoDepends on which is preferable to you: - a smaller US economy that's 100% owned by Americans - an economy that's larger (potentially more than 2x), but is 50% owned by foreigners