Rising Again?

The best bet for economic growth in the US comes from simply looking around the world. Japan is in a recession, Europe appears hopeless, and China is struggling. Where else can you put your money?

The answer appears to be the developing world, or emerging markets. Granted, whenever someone talks about “emerging markets” they usually wind up focusing on China – which definitely carries a lot of risk in terms of both currency value (fixed by the still communist government) and slowing growth. But throughout the rest of the planet there is opportunity. Lots of it, in fact.

While the US still looks great as a “safe haven” there is plenty of reason for cash to start flowing back to the developing world. But that investment is almost certainly going to be led by US investors given the strength of the US dollar.

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A Tale of Two Worlds

As good as things are in the US, there is one threat that remains to the strength of our economy – the rest of the world.

Europe is flat, Japan is a basket case, and Russia is just beginning what should become an epic collapse mirrored only by their experience 25 years ago. China may be hitting the wall, which for them is a rate of growth less than 8% per year – it’s a catastrophe when everyone has financed today based on huge expectations for tomorrow.

Yet, for all that, the total product of the planet is expected to grow by 3.8% in 2015. The developing world is picking up the Great Convergence and with US leadership should still take us into the next boomtime in 2017. But there are risks all around us.

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Income inequality is one of those things that we find almost impossible to talk about in US politics.  Simply raising the issue automatically leads to charges of “class warfare”, a term that is empty enough in meaning to raise emotions without much intellect.  Yet it is important.

One of the great features of recent global economic turmoil is the downturn in the developed world amid continued growth in the developing world.  What’s the main difference between the two?  According to a survey by the Economist, one of the main features is that the developing world generally has increasing income equality but the developed increasing inequality.  Emotional arguments aside, there is a distinct trend that raises real questions of global competitiveness, at the very least.

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