The Quiet Takeover of America’s Financial Institutions
Thursday, December 20th, 2007
By Michael Lombardi, MBA for Profit Confidential
There is only one economy where interest rates and inflation are moving higher — and that is in China. For the sixth time in 2007, China raised interest rates to cool its economy. Interest charged in China for a one-year loan will rise to 7.46%.
While the United States stares down the barrel of deflation, inflation in China’s booming economy is very rapid and real. China’s inflation rate is at its highest level in 11 years, with consumer prices jumping about seven percent in November alone.
Rising interest rates and rising inflation are good things for China – - just as they are good things for any country experiencing such rapid growth. China’s economy is likely the fastest growing in the world, having grown about 10% per annum for at least the past five years.
The U.S. Federal Reserve in busy trying to keep liquidity in our banking system. In an unprecedented move, the Fed just provided $20.0 billion in loans to American banks at a special discounted interest rate to help those banks with their credit problems.
Morgan Stanley (NYSE/MS) reports its first ever loss — $3.56 billion for the fiscal quarter November 30. The second largest U.S. brokerage house blamed write-downs at its subprime mortgage units for the loss.
Bigger news for Morgan Stanley was the announcement that China Investment, China’s sovereign wealth fund, would buy about 10% of one of the oldest brokerage houses in the United States. I can just see J.P. Morgan rolling over in his grave — he would have never thought this possible. (This is not the first time the Chinese have taken a piece of American business history, which is what I consider Morgan Stanley to be. But if you have over one trillion U.S. dollars like China has, what are you going to do with the money anyway?)
The economies of the world move on, the U.S. nears recession, China is booming. And history changes: Instead of the U.S. taking positions in strategic companies in foreign countries, we have China investing in U.S. “prime” companies. By the time all of this is over (i.e. the pain in the U.S. economy), China will own quite a bit of America.
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Tags: china, chinese economy, interest rates
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
