Word: gulf
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Consider what happened the first time the nations of the Persian Gulf found themselves in a dollar gusher, during the oil crises of the 1970s. They handed back much of that money to Western banks, which loaned it out to developing countries that couldn't repay it. Then, in the late 1980s and early 1990s, Japanese firms recycled their dollars by investing in trophy U.S. properties, including Rockefeller Center and the Pebble Beach resort. Both those deals ended in bankruptcy for the acquirers...
This time around, Japan seems content with U.S. Treasury bonds--a dud investment, but a reliable one. China and the gulf states, though, are aiming higher. On May 20, the Chinese government said that it was paying $3 billion for just less than 10% of the Blackstone Group, the U.S.'s leading private-equity firm, which owns everything from Freescale Semiconductor to Michaels Stores. The next day, Saudi Basic Industries Corp. said it was buying General Electric's plastics division--the storied operation based in Pittsfield, Mass., where former GE boss Jack Welch earned his stripes--for $11.6 billion...
...Quinlan. The Saudi plastics buy, in turn, is part of an effort to move up the economic food chain from pumping oil to making things of value out of it. The day after, the CEO of oil-field-services firm Halliburton practically begged for a similar investment from the gulf...
...that keeps up--and all indications are that it will, especially if China and the gulf states prove to be savvy investors--the U.S. will effectively be sending big checks abroad each year to pay for good times past. Which is money Americans won't be able to spend on oil, cars and consumer electronics...
...with the rest of the world is now at a projected $400 billion, and there is no sign that it is going to shrink anytime soon. The surplus this year will be well above 10 percent of China's total economy, a level more typical of a small Persian Gulf oil exporter than the third largest trading nation in the world...