muses of the moment

June 12, 2009

The Wind is Shifting

Filed under: Dollar Crisis, Economic Crisis, Fiat Currency, The Dollar Crisis, US Government Debt — totallygroovygirlfriday @ 12:02 pm

Are you prepared for this shift? You can sail along with the wind or get blown apart in the financial storm.

At financialsense.com, Mr. Engdahl has a very good article entitled, A Tale of Two Diverging Worlds. He outlines the movement of financial power from West to East.

Read F. William Engdahl’s full article here.

Here are some excellent quotes from the article, focusing on very important issues for the US investor moving forward. The United States media will never focus on these stats and facts as it proves that the West is losing world wide economic dominance.

Increasingly a deep divide within the world of globalization is emerging which will have the most profound significance for the future of G7 nations’ economic and political stability. The divide is between those nations which are still embedded within the dollar system, including countries in the Eurozone, versus those emerging economies—especially the BRIC—Brazil, Russia, India, China—where new economic markets and regions are rapidly replacing their over-dependence on the United States as prime export market and prime source for investment finance. The long-term consequences will be an aggravation of the trend of the United States as a political and economic superpower in terminal decline, while dynamic new economic zones, initially mainly of regional importance, will arise. 

I believe this transition of economic power will happen quicker than any example in the past (i.e., Spain to Britain in the 1700’s and Britain to US in the 20th century). This time it is a global, not regional, economy supercharged by fiat currencies and the World Wide Web.

The present crisis is no short-term epiphenomenon as Ben Bernanke, Treasury Secretary Tim Geithner or Barack Obama would wish us to believe. It is the reflection of more than 65 years of defective US economic policy, a defect which reached epidemic proportions after the decision to abandon the gold exchange standard in 1971. Let’s be clear , that gold standard as well as its predecessors was no magic economic panacea. But the break by Nixon in August 1971 allowed Washington to embark on a de facto financial imperialist policy which ruined much of the world economy in its ravages of the past thirty eight years.

Today the contrast between declining G7 economies and emerging dynamic high-population growth economies could not be clearer. The G7 nations from USA to Germany to Italy are choking in public debt, ranging from 80% of GDP in the United States to well over 100% in Italy and a staggering 199% in Japan. Only Zimbabwe with 218% debt to GDP tops that. Germany has a ratio of 77%.

The Western economies have huge social liabilties (Social Security) staring them in the face even if they make all the right decisons to get out of this “recession”. The East (and Brazil) has very little debt to GDP as compared to the West. They have natural resources and younger labor resources.

Unlike in the West – where governments have run out of money or creative new ideas and are now praying that their medicine will work – these countries still have options. Only a year ago, their chief concern was an overheated economy and inflation. Brazil has cut its interest rate substantially, but only to 10.25 percent, which means it can drop it further if things deteriorate even more.

By contrast emerging-market banks are largely healthy and profitable. Every Indian bank, government and private, posted profits in the last quarter of 2008. The governments are in good fiscal shape. China has the world’s largest foreign currency reserves, $2 trillion in reserves, and a budget deficit less than 3 percent of GDP. Brazil is now posting a current account surplus. Indonesia has reduced its debt from 100 percent of GDP nine years ago to 34 percent today.

China, India, Indonesia, Brazil have the resources to take their ball and go play their own game besides the one with the G7. They are already starting that process by working out trade agreements that exclude the USDollar as a medium of exchange. Russia is also in the act.

In 10 years, these countries will not need the US and European consumer nor will they need the US Dollar. Those Western markets will be a bonus, not the base of their exports. Everyone seems to realize this except the American investor.

If you intend to retire in 10 years, make sure your investment strageties reflect this global shift. Look to other, non-American news sources for a more global outlook and stats. Start learning now about these markets and trends and how to invest in them.

The next twenty years will be completely unlike the last twenty years.

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