Dear Friends (and I use this latter term with cautious optimism):
In my last post, I discussed the far-reaching implications associated with shifts in the pattern of Inbound Foreign Direct Investment (FDI). In brief, I stated my belief that the implications may be negative (barring any brilliant and immediate course correction initiated by enlightened leaders and legislators) for U.S. world economic leadership. It is disturbing for any fan of the United States' original brand of entrepreneurial innovation and capitalism to watch as U.S. investors, both individual and institutional, give portfolio preference to foreign markets over domestic markets.
The solution, as I had stated then, does not lie in trade restrictions, investment restrictions, foreign stock ownership restrictions and other xenophobically-driven intrusive sanctions and controls which merely delay and intensify the inevitable -- the answer has to do more with our being more innovative, more price-competitive, more supportive of our exporters and home-grown small businesses, as well as to our applying more honey than vinegar to our international public relations effort. Revisiting such once-successful ideas as the Investment Tax Credit, the R & D Tax Credit and incentives to businesses for creating and supporting domestic employment and contract awards to other domestic enterprises may well be helpful. Although human nature tells us that people are driven primarily by fear of loss or the threat of pain and only secondarily by the opportunity for enrichment, domestic enterprises are offered pitifully little in terms of governmental and regulatory support or opportunities for enrichment at all.
In keeping with this theme, many have noticed that the Euro has been rising significantly against the USD (the Dollar) during these last few years. While there are fluctutions in the rate of exchange from day to day, the macroscopic trend over time is obvious: The Euro is rising against the Dollar. If you are heavily invested in Dollars, or in Dollar-denominated contracts, or in future payments from customers in Dollars (especially if you have to make payments to your suppliers or contractors in Euros). A possible way to hedge against this trend is to request payments inward in Euros, while paying your suppliers and contractors outward in Dollars...there are also different insurance products available to hedge against adverse foreign exchange risk in longer-term contracts and installment payment scenarios.
For holders and receivers of Dollars, the preceeding paragraph was esentially the Bad News, with some suggestions as to strategies for mitigating the impending loss, e.g., "damage control," as they are increasingly fond of calling it in the White House. What follows, however, is the Good News...and along with it, an opportunity for U.S.- domiciled firms to garner profits and reacquire consumers.
As the Euro increases in value against the Dollar, the purchasing power of overseas consumers rises considerably in terms of their ability to buy increasing amounts of U.S. goods and services. This provides U.S. exporters with a pricing advantage against equivalent goods and services being offered for sale by Euro-pegged nations. Savvy overseas buyers are not focused on the implications of a decline in the value of the dollar against the Euro -- they are interested, as well they should be, in buying bargains. Such U.S. staples as recurring exports, bank instruments, securities, and even real estate are becoming increasingly attractive. If properly publicized, the United States is fast becoming a house of great bargains, and a terrific place for internationalists to go shopping. It presents an opportunity for us to attract international consumers back to the U.S. marketplace, and to hopefully recapture their faith, loyalty and business. The challenge to the various trade-related agencies of the United States, such as the Department Of Commerce and the Small Business Administration, to name just two, to get the word out internationally, and positively. This could indeed be marketed as Good News. Possibly.
In my last post, I discussed the far-reaching implications associated with shifts in the pattern of Inbound Foreign Direct Investment (FDI). In brief, I stated my belief that the implications may be negative (barring any brilliant and immediate course correction initiated by enlightened leaders and legislators) for U.S. world economic leadership. It is disturbing for any fan of the United States' original brand of entrepreneurial innovation and capitalism to watch as U.S. investors, both individual and institutional, give portfolio preference to foreign markets over domestic markets.
The solution, as I had stated then, does not lie in trade restrictions, investment restrictions, foreign stock ownership restrictions and other xenophobically-driven intrusive sanctions and controls which merely delay and intensify the inevitable -- the answer has to do more with our being more innovative, more price-competitive, more supportive of our exporters and home-grown small businesses, as well as to our applying more honey than vinegar to our international public relations effort. Revisiting such once-successful ideas as the Investment Tax Credit, the R & D Tax Credit and incentives to businesses for creating and supporting domestic employment and contract awards to other domestic enterprises may well be helpful. Although human nature tells us that people are driven primarily by fear of loss or the threat of pain and only secondarily by the opportunity for enrichment, domestic enterprises are offered pitifully little in terms of governmental and regulatory support or opportunities for enrichment at all.
In keeping with this theme, many have noticed that the Euro has been rising significantly against the USD (the Dollar) during these last few years. While there are fluctutions in the rate of exchange from day to day, the macroscopic trend over time is obvious: The Euro is rising against the Dollar. If you are heavily invested in Dollars, or in Dollar-denominated contracts, or in future payments from customers in Dollars (especially if you have to make payments to your suppliers or contractors in Euros). A possible way to hedge against this trend is to request payments inward in Euros, while paying your suppliers and contractors outward in Dollars...there are also different insurance products available to hedge against adverse foreign exchange risk in longer-term contracts and installment payment scenarios.
For holders and receivers of Dollars, the preceeding paragraph was esentially the Bad News, with some suggestions as to strategies for mitigating the impending loss, e.g., "damage control," as they are increasingly fond of calling it in the White House. What follows, however, is the Good News...and along with it, an opportunity for U.S.- domiciled firms to garner profits and reacquire consumers.
As the Euro increases in value against the Dollar, the purchasing power of overseas consumers rises considerably in terms of their ability to buy increasing amounts of U.S. goods and services. This provides U.S. exporters with a pricing advantage against equivalent goods and services being offered for sale by Euro-pegged nations. Savvy overseas buyers are not focused on the implications of a decline in the value of the dollar against the Euro -- they are interested, as well they should be, in buying bargains. Such U.S. staples as recurring exports, bank instruments, securities, and even real estate are becoming increasingly attractive. If properly publicized, the United States is fast becoming a house of great bargains, and a terrific place for internationalists to go shopping. It presents an opportunity for us to attract international consumers back to the U.S. marketplace, and to hopefully recapture their faith, loyalty and business. The challenge to the various trade-related agencies of the United States, such as the Department Of Commerce and the Small Business Administration, to name just two, to get the word out internationally, and positively. This could indeed be marketed as Good News. Possibly.
As my late father would have likely said, though, "Don't get too happy yet, son!" (he often called me that, as he frequently forgot my first name). His admonition would be most appropriate here because...information is just noise unless it is acknowledged and acted upon.
AMEN.
Faithfully,
Douglas Castle, Internationalist*
*And for this post only, Eurologist.
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