Transcripts

"Commentary"-Sovereign Wealth Funds

SUSIE GHARIB: Tonight's commentator has a quick lesson on sovereign wealth funds. She's Chrystia Freeland, U.S. managing editor of the" Financial Times." CHRYSTIA FREELAND, US MANAGING EDITOR, FINANCIAL TIMES: Don't worry if the acronym SWF hasn't entered your business vocabulary -- yet. When I asked a top economist about it recently, he said that until six months ago, even in his rarified DC think tank, those three letters still meant, in Internet dating short-hand, single white female. Now, though, for anyone interested in global flows of capital, SWF stands for sovereign wealth funds, the huge, state-controlled pools of money that have been accumulated largely by the go-go emerging economies of Asia and the oil princes of the Middle East and Russia.

According to IMF estimates, SWFs hold between $2 and $3 trillion today, up from $500 billion in 1990. The IMF predicts their wealth could shoot up to $10 trillion by 2012. Their power in the U.S. has been enhanced by two of the big economic events of this year -- the liquidity squeeze in financial markets and the fall in the value of the U.S. dollar. A weak dollar makes American assets cheap for foreign buyers, like the SWFs and a credit squeeze means there aren't as many rival domestic bidders able to deploy a fat checkbook.

The big question is what the political reaction will be when the sheikhs and mandarins of the SWFs come shopping. Given the rise in protectionist sentiment and the coming 2008 presidential election, it could be hostile. At a time when the U.S. economy is counting on the rest of the world to save it from recession, that cold shoulder may have unforeseen and nasty consequences. I'm Chrystia Freeland.