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Thursday, July 26, 2007

They are the masters now - or will be soon

The BBC Ten o' Clock News last night featured an article about China's purchase of a share in Barclays Bank. I have posted a video of part of Chris Mayer's speech at Vancouver (see below), where he discusses "sovereign wealth funds".

China, India and Japan have enormous surpluses of money from their trade. They have bought US Treasury securities (bonds, i.e. loans to the US), but this is a thing governments do to park money that they might need back in year or two, when the trading balance has altered. Since the US/UK (etc) trade deficits are long-running, these eastern countries can now start thinking like young private investors, in which case equities become attractive - offering income from dividends AND the potential for capital growth.

These countries are turning our debt into their ownership, like an old Punch cartoon where a plumber took his customer's house in payment for his work.

This issue is big.


Roger Thornhill said...

I agree with your view.

China needs the US to remain 'solvent' so it can buy more Chinese goods, for now...

At some point the bath will get too cold and China will, pragmatically, jump out, dry off and go elsewhere.

This is why I believe the UK needs to be independent, financially robust, secure in energy and running an efficient, low tax, strong rule of law economy.

Sackerson said...

I think few except Euro-integrationists would disagree with your last paragraph, Roger. But how? The first hurdle is what seems to be a disconnection of the political class from the electorate.