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Random Thoughts
The Perfect
Financial Storm � 4
(East and Southeast Asia)
by
Gaurang Bhatt, MD
Both East and Southeast Asia have triumphed on the principle of
exporting more than 33% of their GDP as exports. This Shikhandi strategy
of their success is coming to its end. So far the US with its warped
Keynesian point of view of living on debt to finance its prosperity is
on an unsustainable formula destined for a disaster. The present reality
of dropping exports and rising deficits of South Korea, Taiwan,
Singapore, Taiwan and Japan attest to the end of this has-been strategy.
This explains China�s Wen appealing to America�s honor for not reneging
on its debt and Hillary going to China before Europe.
There are only a few paths to economic power. Mesopotamia, Egypt, India
and China began by agriculture and domestication of animals. Persia,
Alexander�s Greece and Rome used military conquest. India in the early
first millennium then found another way by trade. That is how Buddhism
and Hinduism spread to Sri Lanka, Indonesia, Malaysia, Thailand,
Cambodia, Laos, Vietnam, China and Central Asia. China then spread it to
Korea, Mongolia and Japan. In the West Holland became an economic
powerhouse by trade in the middle of the second millennium. Britain
followed the route of the Netherlands but mixed it with exploration and
colonization like Spain and Portugal (Americas). Britain industrialized
first and needed to market its shoddy but cheap textiles and due to the
foolishness of India and its decaying Moghul rule built an empire of
forced consumers in India and Africa. A weak China and Japan were forced
to trade. Other European powers followed. Large landmass, large
populations, large natural resources, inventive genius, trading ability
and military power are the means to economic power.
Germany was becoming an industrial powerhouse despite its later start
and after unification by Bismarck, sought its own colonies and place in
the world. To deny it Britain fought two world wars and bankrupted
itself. It is now in the worst shape of other major European powers.
Germany�s experience with the thirty year war and two world wars led it
to try a new method, the European Union. This required it to subsidize
much of Europe and the newest ten nations of Eastern Europe to join the
EU have broken the bank and jeopardized both the union and the common
currency of the Euro.
America which had escaped the clutches of Britain just as India was
falling into them, used colonization to prosper. It decimated the native
Indians, took over their land by declaring �Manifest Destiny�. It used
African slave labor, its vast natural resources and land mass. The
inventive genius of its hungry European immigrants played a part as
well. All these were not enough and high tariff barriers, effective
economic colonization of the rest of America (Monroe Doctrine) and
grabbing half of Mexico by force were required to achieve its super
economic status (read Friedrich List and Ha Joon Chang for British trade
with Portugal and American trade-�Bad Samaritans� respectively). Japan
played the same game. America in the last thirty years succumbed to its
dollar�s position as a reserve currency, by borrowing to maintain
prosperity and is still printing money to jump start its economy back to
prosperity. Unfortunately the world is reluctant to take any more of its
IOUs. The US consumer, laden with debts, afraid of job loss, is
unwilling to spend and thus the cause of trade deficits of Japan and the
Asian tigers. Their prosperity was based on exporting and now the rug
has been pulled from under their feet and they are toppling over and
their currencies falling.
In a way it is a repeat of the competitive currency devaluation at the
time of the great depression of the thirties. The yen has fallen 10% in
the last month and the British Pound 30% in two years. The dollar�s
descent is not far. Japan and Germany have the advantage of having
accumulated huge trade surpluses over decades and will weather the
storm. China got its start from Hong Kong and Taiwanese manufacturers
desire for greater profits. They moved their manufacturing to cheaper
wage mainland China with its totalitarian government fully controlling
labor unions. Japanese, American and European companies joined the gravy
train. China became the world�s factory. The communist party could
suppress dissent by offering jobs to its restive migrant labo,r while
the leaders� children got filthy rich. The problem is that the global
economic downturn has put a spanner in CCP�s plans and could lea to
major political unrest and loss of power, especially more so if America
defaults on its debt to China which financed America�s buying binge.
Asian consumers are unlikely to become the world�s growth engine,
America is bankrupt just like Eastern Europe and Germany is frugal. All
of Asia including East, South and Southeast will suffer, not decouple,
and will hold on to their shrinking value dollars instead of uniting to
finance their growth by co-operation and mutual trade and investment.
There is one more difficult to surmount problem facing Japan and Europe
and it is a demographic meltdown. Their populations are aging and
falling. Both of them are xenophobic (unlike the US) and reluctant to
accept, absorb and assimilate immigrants. The US doesn�t face that
problem but it is losing clout in its backyard of Central and South
America whose governments are rightfully hostile due to past
exploitation. They are banding together in ALBA and Mercosur and
chucking out the World Bank and IMF, the Trojan horses of the US. If oil
prices rise steeply, the world and India in particular with its rising
trade deficits, falling remittance by Indians abroad, poor
infrastructure, terrible primary education and stupid and corrupt
leaders is likely to suffer severe problems.
March 15,
2009
Also
See Part 1 (Europe and Central Asia)
Also See Part 2 (USA)
Also See Part 3 (India and the Middle East)
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