The Federal Reserve Bank of Atlanta is to actively monitor global financial imbalances in an effort to become better acquainted with a largely untracked economic reality, Dennis Lockhart, the bank’s president and CEO, announced Feb. 8.
“If global imbalances are unlikely to disappear for some time, and we must live with them, then market practitioners and financial authorities must improve their ability to monitor global investment flows and recognize incipient problems,” Mr. Lockhart said during a luncheon hosted in Buckhead by the Southern Center for International Studies. “My colleagues and I at the Atlanta Fed intend to do this.”
The luncheon drew more than 100 attendees who heard Mr. Lockhart provide an overview on “Current Financial Stresses and Persistent Global Imbalances” before zeroing in on trade imbalances, savings and investment imbalances, fiscal imbalances and foreign-owned dollar surpluses.
During a lively question-and-answer period following his address, he cited China’s creation of a sovereign wealth fund and said that he anticipates it would be “extremely responsible.”
In addition, he said that he considered the investment decisions of sovereign wealth funds generally to be “serious, responsible, commercially minded and professional stewards of their countries’ wealth.”
He also said that in his view, however, foreign investment in the U.S. by holders of dollar surpluses contributed to current unstable conditions in the U.S. economy.
He predicted that U.S. dependence on foreign oil would continue to “last some time;” that countries with large savings rates such as China and Japan would continue their saving ways and that U.S. consumers would not change their practices and become savers.
“This nation will need foreign-owned dollar capital well into the future,” he added emphatically. “…we must not discourage foreign investors.”
For this reason, he opposed any efforts to change legal and tax rules arbitrarily, “including changes favoring local resident interests.” He also opposed confiscatory treatment of property and assets, “including financial assets,” excessive regulation, capital controls and investment protectionism.
He defined investment protectionism as referring “to differentiated treatment of capital providers based on national identity and citizenship as well as denial of certain investment opportunities to nonresidents and non-citizens.”