Gold Forecaster
- Global Watch
Balance of Power Shifts
- good for gold
Julian D.W.
Phillips
Oct 9, 2006
With figures from the Economist
we can quantify just how they will feed global uncertainty and
spur the bull market in gold.
The importance of these
shifts cannot be over-emphasized, because they are changing the
'Balance of Power' in the world significantly and shaping the
global economy and will deeply affect the state of the global
monetary system. So far the $ has managed to hold onto the reins
of power in the world monetary system, despite the catastrophic,
persistent and unhealthy, Trade deficit of the United States,
about which the States is doing absolutely nothing, which has
and will be good for gold, but not for the U.S. Should this state
of affairs persist continuously, there is no doubt that the $
will face an enormous crisis and in turn create one for the global
monetary system.
Last year the combined output
of all emerging economies achieved more than half of total world
G.D.P. (measured at purchasing-power parity). This means that
the rich countries no longer dominate the global economy.
The developing countries also have a far greater influence on
the performance of the rich economies than is generally realized.
Emerging economies are driving global growth and having a big
impact on developed countries' inflation, interest rates, wages
and profits. As these newcomers become more integrated into the
global economy this osmotic influence will change the face of
the world economy forever. On the surface it would seem reasonable
to believe their wealth and individual incomes would catch up
with the rest of the world and we all enjoy the biggest boost
to the world economy ever, far outperforming the industrial revolution.
But we feel this is wishful thinking. To date the effect has
been that the developing nations have drawn off wealth from the
developed nations to themselves. It seems likely that as has
been the case with Japan and its development, their products
will dominate the global economy and with the bulk of the world's
population in these developing countries global wealth and power
will shift away from the developed nations before the global
economy leaps in size.
It is already clear from the
state of the U.S. Balance of Payments that the drain on the U.S.
trading power is well along. The poor prospects for the $ are
clear to most observers so there is little reason to believe
that the U.S and other developed nations will enjoy continued
wealth alongside these nations, except for that they enjoy within
their own close sphere of influence, which is shrinking already.
The emerging countries we are
talking about are not solely China and India, as is the present
impression in many quarters, but nations from all corners of
the earth that can provide products of the same quality at lower
prices. Consequently, due to this all-pervasive process, the
'ripples' flowing from this evolution will breed structural monetary
breakdowns because of the capital flows and exchange rate pressures
that are far greater than ever before!
 So
many developing countries together with former Soviet block nations
have embraced market-friendly economic reforms, opened their
borders to trade and investment, industrialized and are now a
present part of the global economy, alongside China and India.
Because of the synthesizing
of these nations into developed nation's economies within the
global economy, their influence changes national developed economies
dramatically. The prime example of this is being seen in the
United States where the record share of profits in national income
[production by U.S. companies of goods in these emerging economies
at prices far lower than they cold previously produce in the
States], sluggish growth in real wages [because U.S. workers
are in effect competing with emerging nations wage levels], high
oil prices [as global demand rises] alongside low inflation [the
goods produced in emerging economies are a fraction of the cost
of U.S. and other developed nations goods], low global interest
rates [because developed world economies are now fragile and
cannot withstand much higher interest rates] and from where the
U.S. Trade deficit and other developed nations deficits, emanate.
Emerging countries share of
world exports has jumped to 43%, from 20% in 1970. They
consume over half of the world's energy and have accounted
for four-fifths of the growth in oil demand in the past five
years. They also hold 70% of the world's foreign-exchange
reserves.
So although measured at purchasing-power
parity (which takes account of lower prices in poorer countries)
the emerging economies now make up over half of world G.D.P.,
at market exchange rates their share is still less than 30%.
But even at market exchange rates, they accounted for well
over half of the increase in global output last year. [China
and India together made up less than 1/4 of the total increase
in emerging economies' G.D.P. last year.]
In the past five years, their
annual growth has averaged almost 7%, its fastest pace in recorded
history and well above the 2.3% growth in rich economies.
The International Monetary Fund forecasts that in the next five
years emerging economies will grow at an average of 6.8% a
year, whereas the developed economies will notch up only
2.7%. If both groups continued in this way, in 20 years'
time emerging economies would account for two-thirds of global
output (at purchasing-power parity).
 Since
2000, world G.D.P. per head has grown by an average of 3.2% a
year, thanks to the acceleration in emerging economies. That
would beat the 2.9% annual growth during the golden age of 1950-73,
when Europe and Japan were rebuilding their economies after the
war.
Because of lower wages, many developed countries have moved their
production into new factories, trained local workers and boosted
productivity in China. The products had established markets,
so to be able to supply these markets at far lower costs and
from high productivity factories and workers. When America and
Britain were industrializing in the 19th century, they took 50
years to double their real incomes per head; today China is now
doubling its real income per head within nine years!
The sum of China's total exports
and imports amounts to around 70% of its G.D.P., against only
25-30% in India or America. In 2007, China is likely to account
for 10% of world trade, up from 4% in 2000. These exports go
to virtually every nation on earth, not just the developed world.
The speed of these developments has been accelerated tremendously
through the Internet, which virtually destroys geography, taking
the search for new products or [the other way] new markets across
the globe, to a quick and personal level, in a moment, a far
cry from the painstaking searches of the past.
 As the incomes of these
emerging countries grow, so their demand for wants as opposed
to needs will grow, creating a huge demand for non-essential
items, but once they have learned how to produce them, they will
produce them and export them to the developed world as well.
With Japanese cars taking the first place in automobile popularity
in the States, the trail down this road has been blazed.
Right now the demand from the
developing world for infrastructure goods is being felt in the
developed world as over half of the combined exports of America,
the € area and Japan go to these poorer economies. The
rich economies' trade with developing countries is growing twice
as fast as their trade with one another, but will this continue
as these emerging economies gain the expertise to even outperform
the developed world in items currently only being manufactured
in the developed world. As China, India and the former Soviet
Union has embraced market capitalism, the global labor force
has, in effect, doubled, but sad to say the new labor force can
do the same work, with the same quality for a small part of the
price.
Next part - Denial ahead
of crisis impact, with gold soaring!
-Julian D.W. Phillips
email: gold-authenticmoney@iafrica.com
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