Niall Ferguson has a new book out, The Ascent of Money: A Financial History of the World, and he discusses some themes raised by it here. Example:
"How are the developing countries going to fare given the current economic conditions?
Niall Ferguson: Not well. Despite being "Made in America" this crisis has the potential to hurt countries like Pakistan more than America itself. Unfairly, the U.S. continues to be regarded as a "safe haven" for investors, which is why the dollar has rallied in recent months. Meanwhile, economic trouble tends to lead to political instability in emerging markets, which scares investors off."
Doesn't political instability lead to economic trouble? The U.S. is relatively stable, hence a good investment. the rest of the world sees Obama to the right of Europe's Social Democrats, and so, conservative in relative terms. That means stability, especially as compared to a place like Pakistan. When the world is in doubt, it buys American. Let's not mess that up.
Well, foreign investment isn't a great substitute for domestic investment, and with China as the world's workshop, the only thing we have to invest in is/was real estate. Gee, that worked well! I'm afraid we need to worry about our own economy for a change; we are repeating the same error England made in the late 1800s -- specializing in consumption is the road to ruin.
A more valuable dollar does make everything cheaper abroad, while making our exports a little less attractive. Of course the currency of choice recently seems to be the Yen, since it is the currency to which even the US dollar is devalued. I don't really have much of a clue as to the why this is occuring, but one hypothesis is that at current central bank interest rates money is cheapest and close to its theoretical bottom in Japan and the United States.
It may be that Toyota is the strongest automaker in the world, but stock prices are holding up VW as more valuable in part because its exports are expected to become cheaper while the Japanese and the Americans get more expensive relatively. Also Japan is less likely to support Toyota than the United states is likely to support GM and Ford, albeit Toyota might be the most american vehicle in terms of parts and labor. Strangely enough if GM or Ford went down in flames it hurts Toyota because it increases the cost of parts in the United States as suppliers are no longer able to produce parts with the same economies of scale. So strangely Ford, GM Chrystler Honda and Toyota are interdependent simply by extending the argument of the US automakers to congress.
VW is also more valuable because of its ownership structure. It doesn't trade often with sufficient volume and the recent short squeeze was rather incredible, as at one point it was the most valuable stock in the world.
Also in terms of political instability it was interesting that Boeing might have bennefited from China being offended by the Dali Lama being invited to France. Fewer Airbusses and fewer nuclear plant contracts for the frogs?