|Fading U.S. dominance means opportunity
Thursday, April 08, 2010
As we move further into 2010, many of us in the financial industry
are realizing that the world we’ve known for all of our lives
has changed forever. After the First World War, the United States
essentially took over world leadership from the United Kingdom,
which had held its unrivalled globe-spanning empire for all
of the previous century.
The Americans have now had close to 100 years as the dominant
political, economic, and military power in the world. But the
torch is slowing being passed to the fast-growing emerging nations,
of which Brazil, Russia, India and China (BRIC) are the biggest.
This transition is coming, and there is nothing anyone can do
to stop it. As investors, our best bet is to figure out how
this might affect our investments and how we might take advantage
of the opportunities that lie ahead.
I’ll start doing just that in my next few columns. First, let’s
start with a look at the slow displacement of the American economic
The U.S. – a fading powerhouse
A number of issues have contributed to knocking the U.S. off
its perch as the world’s sole economic superpower.
Start with technology. The tech wave contributed greatly to
U.S. economic success over the past 20 years, with companies
like Microsoft Corp., Google Inc., Dell Inc., Apple Inc., AOL
Inc., and others achieving global market dominance. The downside
is that although those companies’ head offices are in the U.S.,
much of the manufacturing has been shifted to Asia. In addition,
outsourcing took many high-paying jobs across the Pacific (mainly
Then, the 2008 credit crisis, which originated in the U.S.
but spread around the world, forced the government to lend billions
of dollars it doesn’t have. Add to this a huge government debt
and foreign wars that will keep the U.S. in the red for many
years to come. Now it looks like the government has to find
billions more for healthcare reform.
This is a massive problem that is likely to require higher
taxes, which Americans typically fight tooth and nail. It will
require a minimum five to 10 years for the country to dig its
way out of the mess it created.
While the federal and many state governments are deeply in
debt, what really hurt the country is that its citizens are
just as badly in debt, having used their homes as ATMs during
a period of historically low interest rates to finance other
real estate and luxury items they couldn’t really afford.
This whole house of cards fell apart when housing prices were
beat down by the 2008 credit crisis. The average citizen now
has to drag himself out of debt in an environment of tepid economic
growth that won’t improve for a few years. In addition to that,
rising taxes and higher energy bills are on the horizon as demand
grows and the global economic recovery gathers steam, especially
in emerging nations.
It has been said that this is the first time American has not
led the world out of recession. In fact, it was America who
brought the recession to the world, and is now paying the economic
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