Not to beat a dead horse, but our nation's global standing has as much to do with how others perceive us as it does with the fact that we have -- or, have had, at least -- tremendous economic and military resources at our disposal.
In other words, once enough people start having their doubts about what is going on in this country or otherwise question the geopolitical status quo, it won't be long before they start wondering about other things -- like whether we are the ones who are, or should be, setting the global agenda.
In "U.S. Political Risks Grow in Financial Crisis," Reuters details the latest example of the once-unquestionable being called into question.
Political risk is becoming a growing concern for investors in the United States as the government plays a larger and more controversial role in private enterprise because of the financial crisis.
State intervention in economic affairs is always closely watched by investors for what it means for their decisions on where to allocate money, although this is usually more of a worry in emerging markets than in developed economies.
Political risk is becoming more of a U.S. issue as some investors howl over what they see as arbitrary intrusion by the government in business affairs.
They view President Obama's restructuring plan for bankrupt automaker Chrysler as an attempt to subvert the legal rights of lenders and say lenders will also be unfairly targeted if the U.S. Congress passes a bill to rewrite bankruptcy law to reduce home mortgage payments.
Investors concerned that politics could hurt them may demand a risk premium before they buy stocks or bonds or do a business deal. That could make the U.S. less competitive and money might flow elsewhere.
"There is a much larger political risk premium on investing in the United States than there has been in years," said Sean West, an analyst at Eurasia Group, a research and consulting firm that studies political risks.
"What we're seeing now in the United States is much more like what we see in emerging markets, where the government either by choice or as a result of circumstance is in a position to decide which companies or banks survive and which ones don't," he said. "These were almost unthinkable risks a year ago."
Uncertainty with the government's plans to stabilise big banks is also adding to the unease.
Peter Morici, former chief economist at the U.S. International Trade Commission, said on Thursday that "only a fool" would buy securities in a bank found to need increased capital after the release of government stress tests on their health.
Morici, now a business professor at the University of Maryland, accused Obama of "arbitrary treatment" of private creditors at Chrysler and General Motors.
In assessing political risks in emerging markets, investors often look at factors such as the stability of the government and the soundness of its economic policies. In developed countries, they assess things such as proposed changes to the tax system and the resulting impact on corporate profits.
Risks in the United States include fears the dollar could dive because of the rapidly growing budget deficit and the potential for inflation because of radical moves by the Federal Reserve to flood the financial system with money.
But a bigger immediate concern, say risk experts, is that established rules governing businesses could be changed depending on the political winds.
With the Chrysler plan, critics say the government unfairly favoured the automaker's union and ignored the rights of senior lenders who are legally allowed to get paid back before unsecured creditors such as workers.
President Barack Obama's attack on Chrysler debtholders who oppose the plan -- he described them as "speculators" who had endangered the automaker's survival -- only underlined the idea the government had no time for alternative views.
Billionaire Warren Buffett said in a CNBC interview this week that, while he was sympathetic to the argument that a few debtholders should not try to scuttle a restructuring of such national importance, he thought there would be "a whole lot of consequences" to sacrificing lender priorities.
The fear that rules can change midstream -- and contracts investors thought were valid are no longer seen as sacred -- can drive up risk premiums, experts say.
"Investors want to know what the rules are so they can determine whether opportunities are profitable or not," said Jaret Seiberg, a financial services policy analyst at brokerage firm Concept Capital.
And it is not only Chrysler that is seen as an example of the government suddenly changing the rules.
The Securities and Exchange Commission intervened at the height of the financial crisis last September by preventing investors for a few weeks from making bearish bets on financial stocks -- through short sales -- after calls from the heads of major financial firms.
And New York's attorney general said last month that Bank of America CEO Kenneth Lewis had testified he was pressured late last year by former Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke to complete its proposed takeover of Merrill Lynch and delay disclosing losses at Merrill.
If investors see more risk in lending money, the practical effect over the long term could be they insist on a higher price to extend loans and drive up the cost of capital for businesses, said George Geis, a law professor at the University of Virginia who studies contracts and corporate finance.
West, of Eurasia Group, said the risks now at play in the United States may not be a long-term trend, "but I would say for the foreseeable future, for the next two to three years, this is the name of the game."
But Seiberg said the real question in making global investment decisions is how countries compare with one another, not whether risk is growing only in the United States. Even with dramatic changes in the government's role in the economy, "we're still less interventionist than most other major economies," he said.
"The very fact that people are upset is a positive because that imposes a constraint on how far policymakers will go. They know that, if they push too far, the investor reaction will be severe."
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