Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Global Economic Decoupling Alive and Well

Economics / Global Economy Oct 21, 2010 - 12:21 PM GMT

By: Neeraj_Chaudhary

Economics

While the US economy continues to weaken (see my recent commentary: Don't Doubt the Double-Dip), many foreign economies continue to experience solid -- even spectacular -- economic growth. When the global economic crisis began in 2008, many forecasters doubted that the world economy could return to growth without the US consumer. But the world is learning what Peter Schiff has long predicted: that the US consumer is a drag on the world economy, not an engine for growth. As "decoupling" becomes more apparent, emerging economies are forming trade links among themselves, accelerating the process of decline for the United States.


To get a better understanding of how decoupling works, it helps to picture a train in motion. Together, the cars and engine travel together on the track. Now imagine that last car, the caboose, detaches from the rest of the train. At first, the caboose travels at nearly the same speed as the rest of the train. The distance between the two is hardly discernable. Over time, however, the car slows down as friction and gravity take their toll. Meanwhile, the engine powers ahead. The distance between the caboose and the train gradually becomes greater and greater, until finally the engine is gone from sight, leaving the caboose sitting idle on the track.

This process describes how many of the world's economies are steadily pulling away from the United States. As trade links grow between countries far from our shores (such as those being solidified between Asia and South America), the distance between the United States and the rest of the world is becoming larger, and decoupling is becoming more and more pronounced.

While the US economy sputtered to a 1.6% growth rate in the 2nd quarter (Q2), many Asian countries rapidly pulled away, powered by trade with each other and the rest of the world. In Q2, China's economy grew a startling 10.3%. Americans would be thrilled with growth half that rate. Asia's second rising star, India, expanded by a solid 8.8%. The Four Tigers also posted excellent numbers: Hong Kong grew at a 6.5% clip, South Korea at a faster 7.1%, and Taiwan at 12.53% -- while Singapore clocked an astonishing 18.8% growth rate! If that's not decoupling, I don't know what is.

These numbers are not likely to be a short-term phenomenon. Instead, I feel they represent a dramatic realignment in the pattern of global economic activity. Economies that have long enjoyed a trade surplus are now less likely to loan money to broke and bloated deficit economies such as the United States. They are now more inclined to consume their own production or trade with other exporting nations. Indeed, China is now the largest trading partner for several of the world's major economies, including Japan, South Korea, India, Hong Kong, Taiwan, Australia, Russia, and Brazil. Slowed by the gravity of excess debt and the friction of increasing taxes and regulation, the American caboose is straining to keep up.

But the trend is not limited to Asia. All around the world, countries with sound economic policies are continuing to expand. In fact, despite the attention paid to the so-called PIIGS, several European economies are also showing signs of decoupling. Germany, Europe's economic powerhouse, grew at 2.2% in Q2 - its fastest rate in over 20 years! Switzerland expanded by 3.4% in the 2nd quarter, while Sweden and Finland grew by 4.6% and 3.7% respectively. Even historically tumultuous Poland boasted a 3.5% growth rate. Predictably, this growth has whetted Europe's appetite for imports, causing the EU to recently surpass the US as China's largest export market.

The trend also extends to producers of the single most important commodity in the world: oil. According to the Department of Energy, the US imports over 60% of its oil consumption; however, new production is increasingly being diverted to international markets, leaving our country vulnerable to 1970s-style shortages.

In the 1st quarter of this year, Saudi Arabia exported more oil to China than it did to the US. With a new growth market for its petroleum, Saudi Arabia is estimated to grow 3.9% this year. Russia grew at a rate of 5.2% in Q2, largely for the same reason. China is now believed to be Iran's largest trading partner, according to some sources. And although the United States remains Venezuela's largest trading partner, China's nearly insatiable demand for oil has catapulted it into 2nd place for trade with this oil-exporting nation.

Whether you are looking at ASEAN, OPEC, or the EU, it is clear that decoupling is the order of the day. The world economy is rebuilding itself with China as its engine and hub. This is the essence of decoupling, and until recently, it was thought by many respected figures to be impossible.

In the old days, it was said that when the United States sneezed, the rest of the world caught a cold. This time, they might just excuse themselves and move to the next car.

For in-depth analysis of this and other investment topics, subscribe to Peter Schiff's Global Investor Newsletter. Click here for your free subscription.

Click here to download Peter's latest Special Report: My Five Favorite Gold & Silver Mining Stocks.

Neeraj Chaudhary is an Investment Consultant in the Los Angeles branch of Euro Pacific Capital. He shares Peter Schiff's views on the US dollar, the importance of the gold standard, and the rise of Asia as an economic power. He holds a B.A. in Economics from the University of California at Berkeley.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules