The only reason why the US has such a high living standard and enjoys a barrage of social services is due to Bretton-Woods. Even during both industrial revolutions and in Henry Ford's time the MAJORITY of Americans were POOR, not subsaharan african poor, but still a step above latin america in terms of the living standard. China was doing fine (relatively) for millenia without Western subjagation. China was actually a major military power in the world up until the the late 1700s, it wasn't until the opium wars by the British that China became a real cesspool. Now the Americans are telling China to buy treasuries. The US is not the same country in terms of non-nuclear military capability as it once was even according to Joe Biden. http://www.youtube.com/watch?v=DWffJ7nkmeA
First of all, I've never once gotten any of my information from youtube. I actually research items before making a conclusion. What a concept there...huh? Instead of listening to what every other talking head says, I prefer to cut through the shit. Secondly, I guess I forgot that the magical demand fairies were working for China and Brazil. There's this little concept called supply and demand. You might want to research it first. All those calling for this great rally in the emerging markets seemed to have forgotten about the demand side of the equation. You aren't going to change the spending habits of billions of people like the flick of a switch. Without the American consumer being artificially inflated, these emerging markets won't grow any longer. For an emerging market to experience flat growth or negative growth is to dance with the devil. The reward is definitely not worth the risk, thus money will leave these markets for the "boring" economies which are developed. China has a very good possibility of actually having negative growth soon. Watch your emerging markets investments collapse when this happens. And as for commodities? Yeah...their great as inputs into other products such as electronics, cars..etc. When people aren't buying those products, then those magical commodities aren't so useful. What do emerging markets sell? They sell junk. What useful products are produced by them. Oh, but I guess that Brazil and China could get together and sell each other a bunch of crap. Maybe Brazil could sell metals to China and then China could mass produce little metal animals to hang from Christmas trees to sell back to Brazil.
Tradestrong you still miss the point. The only reason why Americans can AFFORD DEMAND is due to the dollar being the reserve currency, especially without any precious metal backing they are free to print money. America was historically not always a wealthy country. The reason why emerging markets have been followers is that the majority of them have Western style governments, with incompatible non-Western cultures. Everything from the electoral system downright to the age of majority is based on Western influence. Countries like Zimbabwae exist because native africans have had historically no conception of english-style democracy nor do they think highly of it, they are used to miltiary dictatorship and African kingdoms. India is structured as a British commonwealth, it is down to the fine point. Many non-western countries would not be sustainable if it was not for imf/ world bank intervention, the current 'democratic' regimes would simply collapse and a traditional style of government would return. Your ignorance is showing when you place China and Brazil in the same category. Brazil is in America too, North and South America are both continents of immigrants, latin america is a spinoff of iberian culture, and Canada/USA are spinoffs of the UK.
No...YOU are missing the point. Developed economies like the US can survive with flat growth and still attract foreign investment. America has real innovation and real productivity with technology as a driving force. Emerging economies like China AND Brazil REQUIRE that their own economies grow at a dizzying pace. Once their growth slows, the risk to reward becomes such that foreign investment becomes very hesitant and begins to pull their cash out of those countries. Especially when their governments can't be trusted. Again...risk to reward. Foreign investors can deal with a snail pace return in a developed economy because of the relative stability. And as for my ignorance of Brazil and your tangent about what countries were influenced by whom...what the hell are you talking about. Where did I say whom was spun off from whom? You've gone completely off on a tangent completely unrelated to my original post, so I have no idea how I'm showing my "ignorance" when I haven't even stated anything contrary to your tangent. I'm strictly talking about the demand and risk to reward necessary in emerging markets. Emerging markets are setup such that their growth is strictly export driven due to their own populations not being consumers. Without growth in exports, they provide no benefit and way too much risk for investment.
Again, you still have not responded to my original statement. The reason why America is an import nation is due to the fact that it has the world reserve currency. Before that the US may have innovated, but that DID NOT sustain the current US standard of living. You are looking at the effect only, not the cause of the situation. Innovation in industry and new technology did not make the US wealthy beyond its own means in the industrial revolutions. You seem to not understand the fact that the only reason for the world and its current primarily democratic nation state system is in existence is due to Western intervention. The governments of the ex-imperial territories are structured to favor Western countries inherently. The reason why emerging markets residents are not consumers is due to the fact that they store their hard-earned capital into primarily US dollars. There has been an economic world without America before. IF foreigners repatriated their dollars and dollar-dominated debts, then their purchasing power would increase at the expensive of the US. The very reason why the Fed is able to print so much money is due to the fact that they are able to borrow against the current US government asset holders outstanding in the market. So tell me for the sake of your argument why is the US an 'import nation' and what makes it possible? It is not a coincidence that the US started to have a higher standard of living after they become the reserve currency and the baby boomers could afford to consume due to the fact that their relative purchasing power had increased. This phenomenon accelerated after the US was taken off the gold standard and accountability was lost.
Excellent points. China has no private consumption to speak of -- and won't have any for another decade or two. What will drive Chinese GDP once their fixed asset investments into bridges and office towers fizzles? Saving rates in North America and Europe are going through the roof. China is placing one gigantic bet that the same bankrupt Western consumers will go back to their original spending patters in the next couple of months. What if they don't? China will be sitting on excess production capacity that will be idle for years.
What is there to respond to in your original statement. Most of it is true. I'm not arguing your points, so what am I supposed to counter it with? But your statements still have nothing to do with growth in developing countries. I'm talking in relatives here. Relative to emerging markets, the stability of the US and the potential risk to reward of US investments are far superior than any emerging market. Yes...the US's standard of living is going to be reduced. We were after all inflated by the Chinese government in hopes that they could ride us to their growth. But going forward, the emerging markets will never take off full steam without the developed economies growing. Compare American innovation with Chinese innovation. There is virtually none in China. They essentially have tried taking the shortcut by stealing technology, but there is very little home grown talent due to the government not allowing much private investment. Innovation in America is not going to stop. Our infrastructure for supporting innovation is light years ahead, from our schools, to our factories, to our educated workers. Until the emerging markets can match this in some way, they will ALWAYS be dependent on America and other developed economies. They can hoard all the commodities they want. Brazil and China can become the biggest commodity exporters in the world. But what good are those commodities if they can't be bought as inputs into chips, cars...etc. This is the critical point that Jim Rogers and others calling for the doom of America seem to be missing.
Precisely Makoda...it's good to know somebody else here can actually look at macros and understand them instead of what they "heard" about how great emerging markets are and how they're going to grow so fast since they are "decoupled". That whole decoupling scam has been proven false.
My point is that you are drastically underestimating the social and political ramifications of a massive deleveraging. When you have the largest welfare state in the entire world and an even larger nanny state and that ends all of a sudden people will not take it too easily. America only has a great school system for some. Many inner-city youth do not even have the same opportunity, so called truancy enforcement and higher learning standards are only undertaken in the petite bourgeois suburbs, but state officials often ignore lower socioeconomic communities. When this deleveraging starts to effect the lower classes there is much greater chance of civil unrest. It is not normal for the parents of every children in the petite bourgeois to attend high school, go to college and obtain employment in a stable environment. Before Bretton-woods it was not that common, often teenagers were married early and started working early, the US did not need illegal immigrants to do the work for them. Many US industries are overleveraged for the consumer, what do you expect will happen when a marketing exec realizes that he might have to end up working in warehousing? Factories and innovation do not support a standard of high living. When obese lower-class Americans realize that they will have to go down to the same level as illegal aliens in order to maintain a living, their hopes for the American dream will be shattered. DO not underestimate the Social component and the potential for civil unrest. You are completely ignoring the lower classes, when you have a mass of some of the most materialistic, and yet ignorant people in the entire world that were raised in the nanny state, what will happen? What happened in the French revolution when the French living standard fell after a large bubble? If you look at the International Innovation Index the US is ONLY in 8th place. They are in the same place as some Eurasian and Latin American countries. The British empire was also a great 'innovator' at one time, now their rebellious child America has grown up and is trying to take the place of its parent. Also many corporations in the US, specifically in the software industry (a large "innovator") only are so large due to the US forcing other countries to conform to US copyright standards. Microsoft would not be so powerful, if they did not have US government support, everyone from the EU to China would breakup Microsoft or not enforce the US copyright laws at the minimum. The reason why companies like Microsoft exist in the first place is due to Wall street securitizing and underwriting for Microsoft. So, when the US purchasing power declines and personal investment decreases relatively then Foreign Government rules will have much greater relevance and overall "innovation" will decrease for the US, relatively of course.
I see that you have no interest in discussing the affects of the US's 'deleveraging" is going to have on emerging markets...do you? While the US may experience "civil unrest", relative to most parts of the world, the US will still be doing a hundred times better. This is what gets me about all those that speak of the impending doom of the United States. They seem to talk up emerging markets as if they won't experience any shock of their own, but yet have no problem talking about the destruction of the United States. Ok...let's play the game you want. So let's say the US is going down the drain and we're all going to become day laborers. So...how is this going to affect the emerging markets then? Don't be afraid to talk about cause and affect unless it's a picture you'd rather not discuss because your version of reality is disrupted. What is going to happen to all the foreign investment in emerging markets? Where is this investment going to hide out as the world self-destructs? Lastly, as for this mythical standard of living you seem to think most Americans have, I don't know where you live or if you even live in the US. But I'd like to know where this place is that you're talking about? Where I live, a good proportion of the population already lives in poverty (over 30%) and the rest of the population lives very average lives living in 2-3 bedroom apartments and homes that average 100 grand in price. We drive 5-6 year old cars (I drive a 2000 Elantra) and we grocery shop and go to movies. Some of us own an XBOX 360. Is this this ultra high standard of living that you speak of that the rest of the world doesn't enjoy either? As I watch TV tonight, I'll remember how high my standard of living is that I have this box that plays moving pictures that only I have while the rest of the world lives in the dark ages. And to think that all this time I thought that most people around the world in the developed economies had a car and a television? I guess I was wrong as it only applies to us spoiled brat Americans that don't work and earn our "ultra high standard of living". I love how people make general stereotypical statements based upon a very small population and apply that to the entire population.