Coyote Blog

We have rising oil prices and falling housing prices.  Mortgages are defaulting and stocks have been falling of late.  The dollar is in the tank.  But at the end of the day, the world still sees the US as the safest and most productive place to invest its money:

Its odd to me that from time to time we go through periods of angst (e.g. the late 1980s panic that the Japanese were "buying up America") about this effect, but we should instead be assured by this vote of confidence from the rest of the world.  One might argue that folks are simply buying US assets today because they are cheap, and certainly the dollar's fall makes US assets relatively less expensive.  But assets are cheap in Russia and Nigeria and Venezuela too, and you don't see the world rushing to invest a few trillion dollars in those locales. 

Postscript:  This foreign ownership of US assets also makes the world a more stable place.  I am always stunned when people argue that Chinese ownership of a trillion dollars of US debt securities gives them power over us.  Huh?  Since when does holding someone's debt give you power?  I don't think Countrywide Mortgage is feeling too powerful today.  The fact is that holding our debt and owning US assets gives China (and other nations) a huge shared interest in our stbility and continued prosperity.

I have written before that the government story of the next decade will be the financial meltdown that will ensue as state and local governments are forced to face up to the enormous unfunded pension and medical liabilities they have assumed for their state employees.  Largely, these liabilities are currently well-hidden and off the books, a trick even Jeff Skilling was unable to pull off at Enron. 

My previous prediction that the liabilities probably total over a trillion dollars now seems way low.  Just one state, Illinois, may have over $100 billion in such off-the-books liabilities, and this does not even include liabilities of local authorities like the city of Chicago:

The study puts the state's pension debt at $10 billion, its unfunded
pension costs at $46 billion, its unfunded employee health care costs
at $48 billion, and its unpaid Medicaid bills at $2 billion. The total
costs that will be pushed onto tomorrow's taxpayers without reforms is
an enormous $106 billion, or $8,800 per every person in the state of
Illinois.