Is Total Global Economic Realignment Inevitable?

George Magnus argues in this week’s Financial Times that “The US and other western nations have been shocked into saving more and lowering private and public debts over the coming years. It follows that, if the world system is to function smoothly, someone has to save less.”  In particular, China is dramatically reshaping the world economy as it continues to save more than it spends.

Recent economic data conducted by Goldman Sachs suggests that we have passed the point of no return and total global economic realignment is inevitable.  Goldman Sachs’s Global Investment Research Division predicts that over the next decade, “1.6 billion additional middle class consumers are expected to emerge from outside the developed G7 economies.”  This kind of total global economic realignment will no doubt have an enormously negative affect on America’s ability to preserve its economic and political power and influence both domestically and internationally in the years to come.

The fact that “western European countries took 150-200 years to raise GDP per capita from US$1,000 to US$2,000 in real terms” and China has accomplished this same process in just over a decade is concerning.  It should deeply concern every American that current economic predictions indicate that the combined GDP of the emerging market economies is anticipated to overtake the G7 (which includes the United States) by 2035.

To learn more about the many ways emerging markets are changing the world, I highly recommend watching the following six minute video from Goldman Sachs.  Although the following video is specifically designed for investors, it raises very important political questions that our readers should be concerned about:
http://www2.goldmansachs.com/ideas/long-term/crossing-the-rubicon/index.html

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4 Comments

  1. Peter Schiff has provided the most plausible scenario for a hyperinflation. He foresees a day when confidence in the dollar collapses, as it eventually must, forcing the Fed to become the sole buyer of Treasury debt. When municipal and corporate bond traders realize on that same day that there is no official support for their markets, private debt will go into a death spiral, forcing the Fed to monetize all bonds. Under the circumstances, the Fed would not become merely domestic debt’s buyer of last resort, but the only buyer. Voila! Hyperinflation.

    It should be noted that it is not some certain quantity of money injected into the banking system that will cause hyperinflation; rather, it will be the repudiation of all dollars already in circulation. Holders of physical dollars will panic to exchange them for anything tangible, causing the dollar’s value to fall to zero in mere days. Everything needed to trigger this collapse is already in the pipeline, and it is only the truly benighted, Nobelist Paul Krugman foremost among them, who cannot see the obvious. As for mortgage debt, you will still owe $250,000 on your home the Day After, except that your home will be much more deeply underwater than before – worth perhaps $20,000 instead of $180,000. Mortgage lenders will have to work with you – work with scores of millions of homeowners who are in the same boat – to bring about a reconciliation. No one can predict how already-unpayable mortgage debt will ultimately be paid, but it is almost certain to require a radical change in our laws in order to avoid the kind of social upheaval that could jeopardize the very rule of law.

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