If foreigners stop buying our debt, interest rates will have to rise to attract them as the government MUST borrow to cover it’s expenses. This raise in interest rates may cause the economy to slow and the Fed may have less control than they would like to lower rates and stimulate the economy. Basically, the Fed will have to monetize the debt.
Should the government bail out Ford and GM?
Should the government bail out Ford and GM? We did bail out chrystler and it worked, they paid back the loans ahead of schedule. (of course now they are foreign owned). But that notwithstanding, bailouts are bad. I would be surprised if the politicos bailed them out from this, given that the red states won.
This is really a union issue for the most part as fuel and airplanes cost about the same for everyone. This wouldn’t be a problem at all as they would just raise prices to cover it, except that Southwest and others are undercutting them buy not having all these perks for their employees and running a more efficient shop. We have all heard the pundits talking about lower paying jobs, this is an example. Bust the union, pay Southwest wages and lower prices to consumers. We pay less, they get less and competition becomes even. In fact, the only thing keeping Southwest wages as high as they are is the competition is still union and paying higher wages. If they all go nonunion, wages will drop even further to gain competitive advantage.
Globalization
Globalization can be taken in a number of ways. Such as, the underlying issue of American companies growing due to globalization. Also, there is some degree of diversification that can be had though purchase of foreign securities. To what degree would be dependent on what securities were purchased, yes? A Taiwan semiconductor company could be tied closely to our tech market but a Brazilian construction company wouldn’t necessarily be so closely tied. Of course the easy play would be the Country ETF as a basket. This would more closely tie to our markets as contagion often occurs.
Some countries are more risky than others and their equities will be more volatile but offer more potential. There is far more potential in China than Germany, but Germany is more stable. So risk and reward are once again at issue and the choice is how much risk do you want to take?
Dr. Douglas Rice 