The latest row between the U.S. and its main rival in Latin America recently took a turn for the worse when three U.S. diplomats were expelled from Venezuela. The allegations were that these three diplomats were aiding in the sabotage of Venezuela’s power grid tied in with other sensational accusations. In response, the U.S. expelled three Venezuelan diplomats as a direct retaliation to the actions taken by Venezuela against the U.S. Investment in Venezuela had become unpredictable since the Chavez years, and the current president Nicolas Maduro has been seeking a way to keep Chavismo alive while dealing with an economy that spends more on political capital than it produces in real value. Investing in Venezuela has the risk of expropriation ever present, but with the need of infrastructure and industrial development in the country there is no doubt that Venezuela is a rich country with a great deal of risk, for investors and diplomats alike.
Recently, the Bank of Canada downgraded their forecast for growth. Europe’s healthy economies may likely follow suit. America’s neighbours and partners are watching carefully as the U.S. Congress takes a growing United States and treats it as if the U.S. had no responsibility towards its own economy, its investors and economic partners abroad. The absurdity of not funding the U.S. government over a disagreement on policy that the majority of American people supported runs contrary to common sense, democracy and fairness in the United States. While there was no recent economic drop in the U.S. economy, and downgrading in Canada and Europe has to do with many other factors, the acceptance by investors that a government in the United States would risk the economy and reputation of the United States without any regard to investment may have a harsher long term effect than anyone could realize. With other investment options available and a United States that could possibly tip the boat over in a useless political debate becoming a common reality, a rich recovering America seems like a self defeating economy. If a great investment like the United States has no awareness of its own greatness, there is a constant and perplexing lack of stability in the United States as a whole.
When considering other investing options, the lack of stability in the United States may make the problems in countries like Brazil and China seem less of a risk in the long run. Michael Reid, The Economist’s Latin America editor recently put out a video where he interview’s one of his reporters in Brazil over the recent developments in the country and how growth has slowed and may stay stagnant in the future without a more active policy framework. Brazil had become one of the alternatives for investment in the U.S. over the last few years. With it’s own challenges to face, Brazil could capitalize on political instability in the U.S. if it can get back ok its former ambitious track that it had developed over the last ten years. I highly recommend viewing Mr. Reid’s interview that can be found in the link here.