Americans consume more than they produce. Our imports persistently outrun our exports, and the fact that shale oil production and conservation helped reduce U.S. oil imports to the level of the mid-1990s, and falling oil prices cut the oil import bill sharply, will not change this reality.
In recent years, the U.S. current-account deficit averaged around $400 billion a year. Even though this is only half the level of a decade ago, over the past 10 years current-account deficits cumulatively added up to more than $5 trillion.
The greenback was weakening in the early years of the century due to the surfeit of dollars in foreigners’ hands. Its weighted average against other major currencies went down by over 40% from 2000 to 2008. But in the five years since 2011 the dollar index has now gained more than one-third of its value. This means that there has been a substantial flow of foreign capital back to the United States.
Foreign investors buy U.S. financial assets because of faster economic growth in the U.S. and rising interest rates. Last year, foreign holdings of U.S. financial assets reached a record of over $12 trillion. However, Washington also seems to be pursuing a deliberate policy of making itself a global haven for the super-rich. It is the best time in more than a century to be very rich in America — taxes are low and questions about the provenance of international fortunes are few. Not surprisingly, the world’s one-percenters prefer to keep their assets in the United States instead of such traditional havens as Zurich or London.
In the short run, it may be a good idea. But overall, relying on the massive flows of cash whose origins are opaque and often shady may not be prudent. In the long run, it could create a slew of economic and political problems.
American cities are flourishing. Urban renewal owes much to recent demographic and cultural trends, such as lower crime rates, young professionals’ preferences for cities over suburbs, and retirement and downsizing by baby boomers. Legal immigration, which accelerated in the 1980s after a hiatus of the 1960s and 1970s, has revived ethnic neighborhoods.
But there is an aspect to the American re-urbanization of the past decade that has not been seen before — at least not to the same extent. America’s largest cities are becoming playgrounds for the super-rich, who now prefer to buy multimillion dollar lofts and condos as their pied-à-terres and as a way to park their money. Increasingly, it’s foreigners who are buying up high-end real estate in American cities — and developers now cater specifically to foreign buyers and investors.
Eight-figure properties are often bought for cash and transactions are executed through anonymous offshore shell companies. Even among known owners there are plenty of crooks and shady characters — and no one has any idea how those who prefer to remain unnamed have made their fortunes. No one cares, either; as long as the money is not related to Islamic terrorism, the U.S. government prefers to turn a blind eye to its provenance.
New York City pioneered this practice under Mayor Mike Bloomberg. Before leaving office at the end of 2013, he famously declared that he would be happy to see every one of his fellow billionaires move to New York. Two years ago, New York magazine published an exposé of real estate practices in the nation’s largest city, calling multimillion dollar digs “stash pads” — after apartments drug pushers rent to store their merchandise. Like drug dealers’ apartments, those condos often sit empty for most of the year.
A year ago, a series of articles appeared in the New York Times detailing how hard it is to identify who are the buyers of top flight New York City apartments. The few that the Times was able to pinpoint made for a nice rogues gallery, whose misdeeds ranged from corruption and malfeasance to tax evasion and suspected links to organized crime.
New York remains the preferred American city for foreigners to buy property. The southern end of Central Park has been turned into a billionaires’ ghetto — a theme park for the global one percent where penthouse apartments are going for as much as $100 million. With several of its slim apartment buildings rising more than 1,000 feet — including the 1,775 feet Central Park Tower, which will be the tallest residential building in the world when completed — the neighborhood is starting to look like the Italian hill town of San Gimignano which famously bristles with medieval towers built by its feudal lords.
According to the Times, some $8 billion is spent annually on apartments in the city costing $5 million or more — and this figure is rising. The selling price of the average Manhattan apartment has now reached $1.1 million, an all-time high, pushing above the level seen during the bubble years before 2008.
But New York is certainly not the only place benefitting from foreigners’ largesse. Miami, Los Angeles, San Francisco, Houston and, to a lesser extent, Washington, Chicago, Boston and other cities are also experiencing a major buying spree.