Remember the story of the grasshopper and the ant?
The grasshopper played all summer, while the ant stored away his grain. Come winter, the grasshopper was starving, while the ant colony was well-fed and warm.
Is that what the global economy has come to? Export-oriented countries are playing the role of global ants, running trade surpluses and socking away the savings. But they have to do something with that extra cash. Indeed, if they want the global grasshoppers to keep buying, they have to lend them cash.
But lending to grasshoppers can be hazardous. If the weather turns foul or locusts descend, the ants may lose a good portion of their reserves.
This is the tale that’s being told. The US is cast in the role of the spendthrift grasshopper, and China is the global ant, saving and lending to America. Only it’s not so simple. Economics is not a morality play. China needs a safe, liquid market to invest its billions. They may need to draw on these funds in the future as they shift to domestic investment, and America’s bond markets are the most secure, transparent, and liquid in the world.
Grasshoppers didn’t build these markets. It took decades of analysis and intellectual labor, struggling by trial-and-error to find market mechanisms that could handle trillions in capital flows every day. That’s why New York is the financial capital of the world.
Hard work and education built our markets, not grasshopper-like indolence. It’s one more reason that the US will prosper during these volatile times.
Douglas R. Tengdin, CFA
Chief Investment Officer
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