Beyond Congress: International Funds
The investor who sees the impact of the Congressional Effect should also be wary of investing in international funds with holdings in countries whose government plays an even larger role in the economy than the United States, or where the government's role is growing on a relative basis compared to other countries. Here is a list of the 2012 top 10 economically free countries from the Heritage Foundation:
Since the Heritage Foundation created this index in 1995, the United States has dropped from 4th to 10th place, now surpassed by Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Chile, Mauritius, and Ireland. It is no accident that countries with more freedom tend to do better on the acceptance of their credit in the market. In September 2011, for example, the BlackRock Sovereign Risk Index ranked 13 countries ahead of the United States in the quality of their sovereign risk. It is no coincidence that during this period the United States fell from AAA to AA+ with Standard & Poor's.
It is worth noting that some of the countries on this list, like Canada and Chile, have rising credit ratings as they have reduced the relative size of their government, expanded their trading relationships, and increased their relative freedom. Chile, which is now rated A+ by Standard & Poor's, has been put ...
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