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Monday, February 7, 2011

USA: The Greedy Romans of Today

We had put bets on the Dow Jones Index. The Dow Jones Index is comprised of a basket of humongous American businesses whose share prices move up and down as a reflection of what we had assumed to be the American economy.

Well... this assumption was dead wrong.

Casually observing the economic indicators and government interventions in the USA, we had concluded that the fundamentals in the US economy were weak and would stay weak. We could not understand the run-up in the US share market in the past few weeks. It didn't make sense to us, and so we decided that the share prices would drop soon enough. We bet on the Dow Jones. If it drops we make money. If it rises further we lose.

Oh well... the Dow Jones Index keeps going up.

Then it hit us between the eyes. The US share market is no longer a reflection of the US domestic economy. It is a reflection of the global economy because everyone of the companies in the Dow Jones basket is a mega transnational with tentacles stretching from China to South America and perhaps even Greenland. It doesn't matter if the people at home in America do not buy their products, these companies will still report robust earnings because people elsewhere in the world will buy their products.

American healthcare is in shambles. The public school system limps along. The strong government that can intervene to redistribute resources to the have-nots is tying itself up into snarls because of powerful lobbies. Too many have-nots sleep in the streets. Too many bright young children face a dismal future for lack of opportunities.

Meanwhile, the American elite (the captains of world industry) are citizens of the world. Indeed, with such a wide base from which to draw resources, the captains of world industry are masters of the world, running companies bigger than Singapore itself, without the social accountability that comes with running a country.

American companies seem poised to take off into the stratosphere leaving behind their aged and weak launchpad of a country that is slowly sinking into a quagmire of poverty... and millions of other poor Americans sink with it. It's almost as if the richest and most privileged of the Americans have, in a frenzy of unfettered appetite, depleted theirs and their own, and now rise up in spaceships to colonize and consume other planets of bounty.

Property prices rise everywhere in the world. Every country battles food inflation, as well as a wider income gap. American companies can hire talent at global prices. Top talent in Beijing are paid American salaries, but average person is paid many times below equivalent American salaries. Such top talent can afford housing at prices far above what their compatriots can afford. They too are global citizens (or de facto American citizens by dint of their appartenance to a transnational with American roots). As such, housing prices in Beijing are so high that you can't see them from Ground Zero.

Everywhere in the world the poor stay poor whilst the rich become richer. Poor people are not wanted by American companies. These citizens are the responsibility of the traditional governments. The global economy can fire them. Traditional governments cannot.

This rich-poor divide places pressures on the social fabric of every country in the world. And being business concerns, American companies have no responsibility to maintain social equilibrium, nor preserve the social fabric of the communities they embed themselves into.

These transnational firms are bigger and richer than many individual countries. Someone needs to clip their wings before they tear the social fabric of the whole world by exacerbating social inequality and widening the income gap to levels that many countries have never experienced - like us, in Singapore. There is a need for government policy where none have gone before.

This said, if I were looking at a safe investment, I would buy into the shares of large American transnationals. Their economic base is so very wide that it would take a global depression to bring them down. The greenback (sign of US government strength) no longer seem as safe as before. Share prices of American transnationals (sign of the strength of industry moghuls) seem safer these days.


Anonymous said...

And we all know what happened to the Romans!

petunialee said...

Theanne - Oh dear me... Theanne. Thank goodness you aren't offended!! I was talking about the greedy American elites... Would it be right to say that the common American people also feel this way about these mega companies?

Open Kitchen Concept said...

I like this article. I wish I invest!

petunialee said...

OKC - Eh? You're a sorta banker right?

Anonymous said...

Certainly not offended...most of the semi-poor people I know feel the same way. We talk about it but feel powerless to fix it!

Wen-ai said...

Unfortunately... one will need to buy these transnational American companies is USD (ie: listed in the US markets). So, do take into account of the weakening of the USD against Sing Dollar!

petunialee said...

Wen-Ai: Good point! What a bummer eh?

Malar said...

Very good post!
Anyway I have extend you an award. Please feel free to collect it at my blog!

petunialee said...

Malar- A prize? Waaaaaaaah! Here I come!!