"History is a wonderful thing, if only it was true"

Saturday, March 03, 2007

Clinton Syndrom

Politics and Markets can be a dangerous mix

Hillary sounds off on markets and China

Clip here:
Clinton sounds the China alarm as ’08 issue - Hillary Clinton News - MSNBC.com

Hints of Capital Controls on Thursday ... may have helped spook the markets.

Back in the fall of 1987, the credit markets were getting nervous over James Baker jawboning the Europeans over currencies.

When asked what would happen in the off chance of a "market meltdown, the "wet behind the ears" head of the SEC, David Ruter, suggested that the markets might have to be shut down temporarily.

Well, the best way to describe this is to imagine that you are in line for movie tickets and they announce that "in case of fire, we'll lock the doors"
Time to go to the bar instead.

Now we have Hilllary, front runner for her party for President, suggesting that she could support Capital Controls.

Foreign capital comes to the US Markets because they are the safest, deepest and most liquid in the world. The American economy is strong and there are places to put your capital to work.

If you are a manager in China, where do you want to put your profits for "safe keeping"? France? Uganda? ... China? Esp. if you know that the Chinese financial system is on shaking grounds.

Today in Investor's Business Daily stock analysis and business news :

"But Clinton remains unrepentant. Faced with what she called "a slow erosion of our own economic sovereignty" from U.S. dependence on foreign debt and trade, she would restrict trade and perhaps limit access to currency for trade and investment.

This is almost unbelievable foolishness. Capital controls have been tried before — most recently in Brazil, Russia, Malaysia, Thailand, Chile and Colombia — and almost invariably with tragic economic results.

Clinton misunderstands that what's at stake here is not "debt" per se; it's foreign investment. As the chart shows, foreign, non-government holdings in our economy have soared from roughly $500 billion in 1982 to nearly $12 trillion today. That surge has created literally millions of jobs and hundreds of billions of dollars in incomes and tax revenues.

Over the same period, U.S. household wealth has exploded from $10.6 trillion to $54.1 trillion, and the economy has tripled to $13.2 trillion. This is a remarkable, unparalleled success story.

But if capital and trade controls are imposed, investors will flee, foreign trade will shrink and jobs will be lost. A study by economist Kristin Forbes of MIT found that U.S. multinational companies cut investments in foreign markets 13% to 16% if they suspect capital controls would be used.

Sadly, Clinton's brainchild seems to be the essence of Democratic policy these days — glib, shallow and showing little grasp of even basic economic principles.

As our friends at NRO Online remind us, some in the party — including Sen. Clinton — hold up Sen. Byron Dorgan's proposal to slap restrictions on the economy whenever the trade deficit exceeds 5% of GDP or foreign ownership of U.S. bonds tops 25%.

This is a recipe for stagnation, not growth. It would weaken the dollar, confuse our trading partners, wreak havoc in our markets and reverse 60 years of postwar prosperity. It deserves to be swatted down at once."

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