This article in the yesterday's Wall Street Journal reminded me of a point I raised repeatedly in discussions with groups across eastern Oklahoma when we would talk about America's troubled condition and whether we were in decline. My response was "yes, we do have troubles but let's not forget that America is somehow an isolated thing. We operate in a world that consists of other countries that have their own troubles and we need to keep that in mind when considering America's strengths and weaknesses." I definitely wouldn't want to bank America's future on the assumption that all other countries will be worse off that we are. We need to make decisions in our country with the clear objective of ensuring our economy, culture, military, and political system are as strong as possible. But I think that too often we look at our own situation with blinders own, not realizing that our situation is effected by what's going on in the rest of the world. Do we have debt problems? Absolutely! But if someone in the world with money (whether an individual, a company, or another country) is wanting to invest it someplace, they'll pick a place that is as stable as possible and presents both the lowest risk and the greatest potential for growth. Usually that means investing in America.
From "Troubles Abroad..." (by Sudeep Reddy), "Investors still appear convinced that the U.S. is the safest of borrowers, despite rising angst about government debt around the world...Why is Treasury debt still seen as one of the world's safest assets? The U.S. "effectively got a pass," said Tom Porcelli, chief U.S. economist at RBC Capital Markets. "If you needed to fly into the safety of a country, the U.S. was the best of the worst."
But few things in this world are simple and such is the case with the 'blessing' of being viewed as a safe haven for investment. We normally love to see others viewing our country as the best place to invest and we certainly benefit from being considered the strongest player on the field. But this comes with a cost, i.e. a strong currency means our exports are expensive relative to those of other countries. "More expensive" means we have a hard time competing that in turn means sales, production, and jobs go to our competitors. A weak dollar is actually good for exports but we emotionally recoil at the thought because it appears to reflect the view that our country is weak, less influential, less a 'player.'
There is also the problem introduced by the benefits of increased investment into the U.S. economy and the relative strength we enjoy when compared to the other major players in the global marketplace, i.e. the loss of a sense of urgency that corrections to U.S. spending habits need to be implemented as soon as possible. Again from Reddy, "U.S. debt is seeing similar effects, relieving some pressure on U.S. lawmakers to act with any sense of urgency, either on the economy or its debt troubles. "The flight to safety created a lot of complacency," said Adolfo Laurenti, deputy chief economist at Mesirow Financial. "Governments need incentives to act."
This is an important point. Our leaders in Washington know we cannot sustain our current trend in spending. Something has to change or we will end up as Europe. But people, and especially large organizations, have an extraordinarily difficult time making hard decisions when they think they can put off such decisions until 'later.' Our relative advantage in the world gives us breathing room, but it cannot protect us forever from the harsh consequences of irresponsible fiscal policy. Again, this is a time for true statesman to step up at the national level and make the compelling case for changing our ways. Paul Ryan has been diligent in doing so as Chairman of the House Budget Committee. Let's hope his selection as Gov. Romney's running mate indicates this election will be about 'big ideas' and the future of our country.