Rebalancing of Power:
In my last article I mentioned about the relative strength of the US dollar and also expanded that the US dollar shine is there but for short time of one year or so .Although US dollar won t loose its sheen against all currencies so easily the way it appears but in the long run I think there would be reshuffling of power which will lead to the shift in power from US to other economies and this reshuffling of power can be attributed to the phenomena of globalization.
Globalization with it has brought a lot of impact which does not seem to be conspicuous. The rage of globalization has brought about a rebalancing act; rebalancing of the power and dilution in the world economic concentration.
Globalization has increased the money in the hands of the developing countries and now the middle class of the developing countries is catalyzing the economic development of the countries by creating demand by leaps and bounds , making the countries like China and India , a fundamentally attractive places for investments and seek alpha.
With globalization, began the continuous circle of the fueling the economies. India growing at a pace of around 7% while China continues to post double digits growth of around 10% p.a. creating voracious demand for commodities , industrial products , manufactured goods et al.Hence, it has enabled new equations of the trade creating more significant trade partners other than US. With more options to invest and earn, the flow of capital seems to be changing course very swiftly, resulting in volatility in the world around, with change in the environment of a country making it more vulnerable in event of some economic or political blow-out. Hence a small mistake or oversight may prove to be expensive for any economy. Like in US the sub-prime melt down has led to the flight of capital away from US and the structural weakness in the US dollar.
I think with globalization, any faltering by any economy will lead to shake-up and further redistribution of power, creating more trade and investments avenues .Hence redistribution of the power among the various developed and developing world is going to be the course of the capital in the coming decade. The edge would be to gauge where the money is flowing and from where it is flowing, not just among the various sectors but also among countries. Hence for US to maintain its supremacy, it needs to gather its acts. For the biggest proponent of globalization, the effects seem to be far reaching; the latest fiasco of the sub-prime mortgage has cost US loose its dollar supremacy which is quite a lesson not to err again. So what globalization has done for US is: firstly, it has made US more vulnerable to its own mistakes. Secondly, it calls for more discipline in the markets .Thirdly, in future, it will lead to sharing of its economic leadership with other countries may be Euro region, China, India and others.
Finally, this game of rebalancing of power will surface in the form of currencies. In other words, the gainers and losers of power will be reflected in the strength and weakness of their respective currencies. Eventually I think the various currencies would be pegged not just to the US dollar but may be to a basket of currencies or just Euro. But this process is very long one, this transition period will take time but it seems to be imminent. World is indeed getting rebalanced.
In my last article I mentioned about the relative strength of the US dollar and also expanded that the US dollar shine is there but for short time of one year or so .Although US dollar won t loose its sheen against all currencies so easily the way it appears but in the long run I think there would be reshuffling of power which will lead to the shift in power from US to other economies and this reshuffling of power can be attributed to the phenomena of globalization.
Globalization with it has brought a lot of impact which does not seem to be conspicuous. The rage of globalization has brought about a rebalancing act; rebalancing of the power and dilution in the world economic concentration.
Globalization has increased the money in the hands of the developing countries and now the middle class of the developing countries is catalyzing the economic development of the countries by creating demand by leaps and bounds , making the countries like China and India , a fundamentally attractive places for investments and seek alpha.
With globalization, began the continuous circle of the fueling the economies. India growing at a pace of around 7% while China continues to post double digits growth of around 10% p.a. creating voracious demand for commodities , industrial products , manufactured goods et al.Hence, it has enabled new equations of the trade creating more significant trade partners other than US. With more options to invest and earn, the flow of capital seems to be changing course very swiftly, resulting in volatility in the world around, with change in the environment of a country making it more vulnerable in event of some economic or political blow-out. Hence a small mistake or oversight may prove to be expensive for any economy. Like in US the sub-prime melt down has led to the flight of capital away from US and the structural weakness in the US dollar.
I think with globalization, any faltering by any economy will lead to shake-up and further redistribution of power, creating more trade and investments avenues .Hence redistribution of the power among the various developed and developing world is going to be the course of the capital in the coming decade. The edge would be to gauge where the money is flowing and from where it is flowing, not just among the various sectors but also among countries. Hence for US to maintain its supremacy, it needs to gather its acts. For the biggest proponent of globalization, the effects seem to be far reaching; the latest fiasco of the sub-prime mortgage has cost US loose its dollar supremacy which is quite a lesson not to err again. So what globalization has done for US is: firstly, it has made US more vulnerable to its own mistakes. Secondly, it calls for more discipline in the markets .Thirdly, in future, it will lead to sharing of its economic leadership with other countries may be Euro region, China, India and others.
Finally, this game of rebalancing of power will surface in the form of currencies. In other words, the gainers and losers of power will be reflected in the strength and weakness of their respective currencies. Eventually I think the various currencies would be pegged not just to the US dollar but may be to a basket of currencies or just Euro. But this process is very long one, this transition period will take time but it seems to be imminent. World is indeed getting rebalanced.
3 comments:
Hi Richa,
This is sachin nimkar (chirag's friend). Nice article..very accurate and to the point. I have one point to make:-
" I feel money supply would definately reshuffle and would find its way to get invested in profit making assets. But i think in emerging markets India would hardly be benifited from it simple reason associated being India being preferred as last destination for parking funds (Source Goldman & Lehman report on emerging markets outlook) Big financial institutions & Hedge funds prefer China,Korea,taiwan,malaysia in asia pacific region. So my point is we cannot compare India and china just b'coz india is being growing consistently above 8%. If you look at overall flow of money into asian markets then India ranks last in terms of attracting foreign investors. Also i think US economy will play any dirty politics to save its economy & we could see a could revamp in overall growth may be in next year 2009. I had mentioned in one of my report that 2008 will be worst year for US economy...thereby pulling down the other markets. Also i am waiting for a big crash in china market mostly after March 2008. Asset prices have soared to unrequired levels. One hint of problem...and you will see Funds pulling out there money from china too...and would start investing in some other economies.
I am planning to write one article on how china is fooling other markets by hardening their monetary policies. Lets c when i can do it.
Feel free to correct me & would appreciate ur comments.
Hey Sachin,
Interesting point!! I used the China & India as a way to mention asian countries. Anyways , would be looking forward to read your article.
Bhakti Raicha
Very well written article Bhakti. I would just like to add this; "So as to attract more funds into its markets, India should work on curtailing corruption, improving its governance and chalking out effective policies. It is crucial to find out the impact of globalization on output, consumption and investment. The tariffs and other barriers set by developed markets along with less development assistance restricts the fruits of globalization for developing countries and hence adds to further unsteadiness".
Post a Comment