How US Money Travels the World

In a recent book titled “The Next Decade” by George Friedman, Mr. Friedman makes the point that the US remains the world economic power with 25% of the world economic production. His contention is that the US President must exert that power in many ways, always mindful that the USA is the world’s economic powerhouse. This blunt assessment of the remaining power of the US economy and its military, is a reminder to the doomsayers who are convinced that the USA is in an economic free fall, that the US dollar is doomed, and that gold is the answer.

US $$$ Traveling Around the World
Even before WWII, but with pronounced effect thereafter, starting with the contribution of American military aid to its war allies, US dollars have left the shores of America and have funded the world. This transfer of wealth through military efforts continues to this day with troops and equipment stationed in over 100 places throughout the world. It continues with foreign aid and financial support to countries as diverse as Israel and Egypt and so many others.

The flow of US dollars from American shores continued unabated with The Marshall Plan following WWII to rebuild Europe. The result was a massive economic power created in Europe that almost rivaled the USA, but not quite, called the European Economic Union with its own currency, the Euro.

American post WWII aid to Japan created a new military ally and then an economic powerhouse. It continued with the enormous import of Japanese goods and services to America which fueled the economic powerhouse of Japan. Today Japan still ranks as one the world’s greatest economic powerhouses.

America’s appetite for energy created the start of OPEC and the massive flow of oil into the US. This created the “Eurodollars”, being massive amounts of American dollars floating around the world. Then came the oil embargo in the 1970′s, creating a massive outflow of US dollars to obtain alternate energy sources. Since then, there has been a large and constant flow of US dollars going overseas to fund oil imports.

With technological advances and greater prosperity, came an American appetite for consumer goods, fueled by stores such as Walmart, and China became the beneficiary by exporting enormous quantities of goods to the US and in exchange receiving US dollars. The result of this was yet another world class economic power created.

Through these various periods, the US continued fighting wars and sending enormous sums overseas for this conflict or that conflict.

A Seven Decade Pattern of Exporting Enormous Amounts of US Dollars.
The result of this repeating pattern of sending money around the world, is that there is now a whole family of economic powers including Europe, China, the Middle East, and Japan. Each of these economic powers controls great wealth and power, yet none approach the US in size, influence, economic power or military position. The US dollar has created prosperity in so many areas, and not surprisingly, the USA itself has grown and benefited more than any. It has been very good for the USA.

The US still has over 25% of the GNP of the entire world.

What Happens When a Country or Area Becomes Prosperous and Flush With Dollars
Remember the Japanese invasion of mainland US in the 1980′s, looking to buy movie studios, New York buildings, famed companies, and so on. It was the Japanese invasion. Japanese tourists were everywhere snapping pictures with their Japanese cameras, buying up everything in sight. Americans stood in fear wondering what was happening to their country. In hindsight, America was enriched by attracting back these massive sums of money together with the knowledge and advancements of these newly rich people.

Remember the Arab Sheiks buying famed British landmarks, famed British department stores and newspapers? Once again, the money flowed around the world meeting demand and supply needs and opportunities.

China is no different. This week it was reported that China’s sovereign wealth fund is among a trio of Asian investors vying to buy an £800m London office campus from Blackstone, the US private equity firm, in what would be the UK’s highest value property deal since the start of the financial crisis. China Investment Corporation and government-backed funds from Korea and Malaysia have tabled bids for Chiswick Park, Blackstone’s 1.1m sq ft development, according to people familiar with the process. In the past year, China has attempted to buy energy assets in the US and has succeeded in buying oil sands assets in Canada.

The current discussion is whether state owned or controlled enterprises should be allowed to compete with private enterprises, and accommodations and negotiations are continuing.

The essential point here, is that money flows to wherever it finds a home. The US dollar has funded the world and continues to fund the world, for the good of all, but especially for the good of US citizens. As a country obtains wealth, it seeks to do what every other country does with wealth, which is to invest it in safe and secure assets, which has always meant the USA and continues, more than ever, to mean the USA.

Why the USA
The USA has some advantages that are unmatched anywhere else, and no competition is on the horizon. These advantages make the USA a home and a magnet for worldwide investors. Some of these advantages are the rule of property law, the rule of intellectual law, the inalienable rights of the individual, the free spirit of the American way, a lack of threat of military action by neighbors, and above all is the continuing beacon of the almighty US dollar as a haven of safety.

US Dollar v gold
We hear so much about the ‘fiscal cliff’, about how the US debt is unmanageable, how inflation will destroy the American dollar and how you must have gold to protect yourself, and so on. This is all nonsense. The US dollar has proven to be the most resilient and safe method of exchange and shows no sign of losing this position. The other currencies can get together and form other currency blocks including the Chinese, the Europeans and so on. This may or may not happen, but their strength compared to the US dollar is just not terribly significant.

The US dollar in our lifetime, has provided worldwide prosperity, opportunity and an accepted international method of exchange for goods and services. By the export and worldwide use of American dollars, all of these other large economic growth areas have been created and they remain sustained by the US dollar.

Don’t be misled by those screaming that the end is nigh
Thiscycle, like every previous economic cycle shall pass, and the US dollar will remain the currency of exchange. For non-believers, I suggest you start carrying around a pocketful of gold to pay for your morning coffee. See how long until your pocket rips open from the weight.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.