Thursday, June 2, 2011

The Great Economic Shift

World economies are in the process of restructuring, especially in the United States which will experience a seismic shift in its economic structure. The great consumption based economy will eventually give way to raw production and manufacturing. The transition may occur gradually or by waterfall collapse, but it will occur. Right now the gradual approach is being attempted by governments and central banks, but this isn't sustainable and the gradual slide will inevitably become a catastrophic slip.

The result of this 'slip' will involve the US dollar losing its reserve currency status and a significant amount of its purchasing power. At the same time the Chinese currency will be forced to appreciate or inflation will destroy the country. China must manage unrest due to inflation by revaluing their currency, it's that simple. With the US currency depreciating and the Chinese currency appreciating, we will see a transfer of purchasing power from the US to China. As everyone knows, China is a resource hungry country and with a stronger currency they will be able to purchase raw materials at a much lower cost. This will increase competition for commodities and the US will no longer have the luxury of cheap oil, metals, or any other imported goods. The US will be forced to export real items (rather than inflation), and this is where the new economy begins. Business of the future will be forced to serve this new order, or they'll languish.

Now for the caveat, this is one of the best case scenarios. Large scale shifts in power rarely occur without major wars or devastating economic upheavals. With the world economies so intricately intertwined it's conceivable that we'll all slip together, at least initially. At that point the question becomes: who will be the first to claw their way out of the abyss? It'll most likely be the people with  free markets, sound money, abundant resources, established infrastructure and motivated people.

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