Sunday, February 26, 2006

Ports Issue - An Econimic Perspective

This from an email newsletter:
The Daily Reckoning - Weekend Edition


Dominating the news this week was the deal made to sell London-based
Peninsular & Oriental Navigation Company to the United Arab Emirates
controlled Dubai Ports World. ‘How can we be making a deal like this in
our post-9/11 world?’ wonder both Republicans and Democrats, whipping the
media frenzy into high gear.

There are a few details the media is glazing over. First, it is not
uncommon for foreign countries to operate U.S. shipping terminals; in
fact, China already runs a terminal at the Port of Los Angeles and
Singapore runs terminals in Oakland. Second, Dubai Ports World will not be
running security at the five East Coast ports that have been acquired in
this deal – that will continue to be up to U.S. Customs and the U.S. Coast
Guard. And third – and this is the part that you haven’t been hearing much
of in the news – “America no longer has the internal wherewithal to fund
the rapid growth of its economy,” as Morgan Stanley’s Stephen Roach puts

In other words, since our net national savings rate fell to -1.3 percent
for the first time since the Great Depression, we are spending more than
we are consuming – and then some. This leaves us open to external funding
and production, which is where our involvement with Dubai and China comes

“Faced with a shortfall of domestic saving, countries basically have two
choices -- to curtail economic growth or borrow from the rest of the
world,” continues Roach.

“The first option just doesn’t cut it in the land of abundance. America,
in general, and its consumers, in particular, treat rapid economic growth
as an entitlement. That leaves the United States with little choice other
than to pursue the second option - drawing heavily on the pool of surplus
global saving as the means to fund economic growth.”

The United States is clearly relying on the kindness of foreign strangers
– in 2005, we had a balance of approximately $200 billion of cheap, high
quality Chinese goods, which expanded the purchasing power of the American
consumer. Despite this, the pundits in Washington are still pushing these
protectionist measures, doing their best to squash the deal with Dubai and
trying to stop trade with China by imposing high tariffs or forcing a
Chinese currency revaluation.

What good will these measures do for the United States? Our deficit
reached an all-time high in 2205, we are in over our heads in debt, we
aren’t saving anything and incomes have actually decreased – if we don’t
get help from China or Dubai, we’re going to have to get it from another
foreign country.

“It is short-sighted protectionist measures – like the ones being pursued
by members of Congress – that helped precipitate the Great Depression,”
says Capital and Crisis’ Chris Mayer. “The more difficult politicians make
it to do business in the United States, the more they risk triggering
global depression and economic stagnation.”

Kate Incontrera
The Daily Reckoning

Personally, I do not believe that we are safer from terrorist acts when we allow Nation-State owned companies run our port operations … especially if the Nation-State does not operate from a rule-of-law tradition.

The security threat actually comes from the fact that these companies are responsible for the hiring and firing of personnel … If one were an uber terrorist/spy; it would be smarter to launch terror attacks at our ports from within this Nation-State infrastructure. This process flies under-the-radar of our Coast Guard, Customs, and other on-site security operations … it is not their job to be vetting the stevedore and other associated workers. This deal may be less leaky than our borders ... but some ships will have an easier time sinking!

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