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Stock Ideas Investors Daily Edge Why They Call It a Global Economy
Stock Ideas Investors Daily Edge Why They Call It a Global Economy 
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Dear Reader, The U.S. economy is in deep trouble. The Dow Jones Industrial Average plunged more than 306 points. The S&P 500 -- the index most closely watched by market professionals -- fell nearly 3%. All told, the Dow, S&P 500 and Nasdaq have given back all their 2007 gains. |
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| Why They Call It a Global Economy |
| Friday, 10 October 2008 | ||||||||
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Finally, a reader is giving me a little sympathy. Mr. Kumar says, “I pity Andrew Gordon.” I thought he was going to commiserate on how tough it is to invest in a falling market. But no. Mr. Kumar goes on to say: “the people living in BRIC countries made the economy of U.S & EUROPEAN nations strong and even as global powers.” He then poses this question, “Who is really depending on whom?” Mr. Kumar, you sure don’t shy away from the BIG QUESTIONS, do you? I can’t get to everything I’d like to say on this topic in just a couple of paragraphs. But let me share with you a couple of observations. Before China, Russia, India, and Brazil got their economic acts together (and it is still a work in progress for all these countries), the U.S. and Europe were the biggest and most powerful economic powers in the world. Going back 240 years, the industrial revolution began in Europe – and more specifically, in England with the invention of the steam engine. In the centuries before that, England, Denmark, Spain and Portugal took turns as dominant mercantile powers. So saying that the BRIC countries made the U.S. and Europe into global powers is absurd on the face of it. And, unfortunately, Mr. Kumar fails to explain how he reached this conclusion. I suppose I can try to fill in the blanks... I don’t know if Mr. Kumar has read his Marx. A Marxist view would have the U.S. and Europe expanding in the last couple of decades of the 20th century on the back of cheap resources and labor from BRIC (and other developing) countries while selling them our expensive finished goods and products. The obvious problem with this point of view is that such a one-way economic relationship would never have allowed the BRICs to flourish the way they have. So let me state what I think is going on... The U.S. and Europe did, and do, take advantage of these countries. I will not argue that. But I will add this: These countries also take advantage of the U.S. and Europe. What we have here is a classic symbiotic relationship.
Without the tremendous purchasing power of the U.S. and Europe, the export-driven economies of the BRICs could never have expanded so fast and with such positive results. And while the U.S. and Europe have indeed “taken advantage” of their cheap labor and resources, they also brought to these countries much needed capital and technology. But now with the cost of resources way up, the U.S. and Europe are importing inflation. And the bubbles here which fed the industrialization, export, resource and real estate markets of the BRICs are now collapsing. Given our symbiotic relationship, it’s not surprising then to see exports, commodity prices and real estate in the BRICs also suffer. In other words, as corny as it sounds, we’re all in this together. “Who is really depending on whom?” Wrong question, my friend. We sink and swim together. And, unfortunately, right now, we’re doing more sinking than swimming. Invest well, Andrew Gordon P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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