The Global Shift in Capital

Every so often the global economy undergoes major shifts: the Industrial revolution brought one shift, the floating exchange rate another. These are the kind of shifts that aren’t fully understood at the time, yet are crystal clear in hindsight. Because of the democratization of knowledge and the spread of capitalism outside the U.S., foreigners will have plenty of capital to move markets. This is the next major global shift.

The U.S. is losing its competitive edge, which will be apparent in the years ahead due to the drastic cuts in education we are making because of the debt crisis. Apparently maintaining military bases around the world is preferable to educating the youth of America. Unfortunately, we are losing sight of what’s important: we should be bailing out our children, not “too big to fail” banks.

While I’ve grown up in a world where the U.S. was the sole political and economic superpower of the world, I am not naive enough to think this is the norm in history. I understand we got away with a lot of imperfections, both economically and politically, because the rest of the world was in shambles following World War II. We had dominant positions in major industries and the reserve currency of the world. If we didn’t have the money to fund programs, heck we’d’ just borrow and put the burden on future generations. Our politicians had no real concept of the future and what their actions would do to our country.

Now we are faced with a debt crisis that is going to hobble us for years. While we pick up the pieces, Asia will pass us by. When this happens, Americans have a choice: we can either sulk about lower wages abroad or we can strive to compete globally. The world is changing so quickly and there is no time for complacency.

Foreigners With Capital

Anyway, back to my original point. I came across an interesting article today in the Wall Street Journal about a potential bottom in real estate. Many of the pro-real estate arguments in the article are arguments I use. However, the article fails to mention perhaps the biggest bullish factor for U.S. real estate, which is foreign buying pressure.

I’ve said that foreign investors were going to step in and support real estate in America. Well it’s happening. In Miami, it is Brazilian investors who are sweeping in and buying real estate, not Americans. Now who in their right mind 10 years ago would have thought it would be Brazilians and not Americans with the money to buy real estate? This is a quickly changing world.

On that note, I talked to a real estate professional who recently made a trip to China. This person told me that the Chinese “know” real estate in markets like Las Vegas is cheap, and that they are starting to buy aggressively with cash. The Chinese are getting rich beyond our imagination and there is no shortage of people with cash. I’ve heard this several times from business people who have traveled to China. There is a major shift occurring before your eyes and calling China a bubble is like calling American a bubble in 1900. Don’t do it, you’ll risk looking like a complete moron in 10 years when China overtakes us in GDP.

Americans need to grow accustomed to a world where we just aren’t as dominant as we once were. Foreigners are getting richer by default because the dollar is losing value. Gold and silver are essentially the only protection for Americans against the madness of politicians.

The Global Shift in Capital is a post from: Expected Returns

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