A friend of mine forwarded me a very
interesting article by Bob Herbert in The New York Times, titled "An
Uneasy Feeling". I think everyone should read it:
article highlights not a few, but a lot of issues with the economy. It
comes in a time when Warren Buffett's Berkshire Hathaway buys Northern
Santa Fe Corp for USD 26 billion and WB is quoted as saying "It's an
all-in wager on the economic future of the United States".
may have placed his bet. However, for the rest of the world, the
realities are not conducive for a wager as yet, not on USA and not on
any other country either.
The emerging markets phenomenon is
currently shining like pyrotechnics. Stock markets have given gains in
excess of 50% and we are hoping that they will pull the world out of
the financial crisis. The statement may be true, but the world must not
forget that it is important to have recovery in the USA also, and this
recovery needs to be for the middle class, and not merely for WB and
At present, USA is still approx. 20% (USD 14
trillion) of world’s economy (USD 70 trillion, Gross domestic product
based on purchasing-power-parity, as per IMF http://www.imf.org/external/pubs/ft/weo/2009/02/weodata/index.aspx
). China comes closest with 12% (USD 8.7 trillion). Other key emerging
countries are: India 5% (USD 4.5 trillion), Russia 3% (USD 2 trillion)
and Brazil 2.8% (USD 2 trillion). In speedometer terms, apart from
China, and probably India, at global level, growth in rest of the
emerging markets hardly move the needle of economic growth. (For
reference purposes, UK is 3% - USD 2 trillion).
In case of
China, GDP growth is mostly export let, and significant amount of its
exports are to the USA. Most of its surplus ends up being invested into
US treasury bonds i.e. it lends heavily to the US government. The US
government channels this money back into the US economy (and various
wars across the globe). As the US economy produces very less of its
needs, it ends up importing from China again, plus it also ends up
paying interest on bonds. Apparently, this is a cycle that runs in
- Americans not only end up buying Chinese goods, but also paying interest to China through their tax payments.
- China reinvests its export earnings into US government securities.
The same story is repeated in the petroleum cycle and probably the IT cycle (Refer http://www.treas.gov/tic/mfh.txt for listing of holders of US treasury securities).
cycle is creating a bubble and is working like a ponzi scheme and the
risk is that if and when US will sneeze, the repercussion will not
merely be the world catching common cold. The second risk that that the
world will not reach the point of catching a cold (or in other words,
the point of bursting of the bubble), as the US government will keep us
all busy with wars and propaganda while media will keep us distracted
with non issues like the Tiger Woods case or renaming of Burj Dubai as
From my perspective, I truly hope that we see a revival in the true economy of USA.