Eastern Economies Decoupling From The West


This decoupling idea has been stated over the past several years only to have people say there is no way it will happen for at least a couple decades… looks like now the decoupling concept is gaining more mainstream commentary as the reality is… it is happening.

Today’s world-spanning web is insulating markets such as China from the drag of weak recoveries in the advanced world and providing global growth with a new power source. Stephen King, HSBC’s chief economist, predicts the relationships will strengthen and lists them as a reason for his forecast that emerging markets will grow about three times faster than rich nations this year and next on average.

“The potential for inter-emerging market trade is ginormous,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London, who coined the term BRIC in 2001 to describe the rising role of Brazil, Russia, India and China. “That makes it quite difficult to see how you get a sustained global recession because of what’s going on in the west.”

“There are now massive trade connections within the emerging markets and they’re becoming increasingly important,” said King in a telephone interview. “It means in one sense the emerging world is protected from the worst ravages of the developed world.”

“Go to a market in Nairobi and you’ll see Chinese goods on sale,” Curtis said. “If emerging market fundamentals continue to be superior, there is the potential for serious currency appreciation against old-guard currencies.”

Bloomberg

As stated many times, the greatest shift in the standard of living between the West and the East will come in the form of currency exchange rates… that is the Western currencies will depreciate severely against the Eastern currencies. Once the Eastern currencies rise appreciably, they will be able to bid higher for commodities world-wide. The cost for the United States to import these commodities will require many more dollars to be the winning bidder for these commodities against the stronger Eastern currencies. Again, the coming rise in prices has nothing to do with banks lending money. There are other factors for rising prices too including a shift away from dollars as confidence is eroded in their purchasing power due to policies in Washington and money printing. As the velocity of dollars increases due to confidence loss, the prices that sellers of goods are willing to part with their stuff will be marked up.

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