The Tide has Turned
Puru Saxena
The world’s economic landscape is changing and after a disastrous decade, America is once again in the driver’s seat. Contrary to the 2000-2011 time frame (when the developing nations fared a lot better than America), the tide seems to have turned in favour of the world’s largest economy.
As you will recall, at the turn of the millennium, American business was booming and Wall Street was caught up in an epic technology bubble! Back then, American assets were highly sought after and even its currency was extremely strong. Unfortunately, that period of prosperity did not last forever and the bursting of the technology bubble in March 2000 ushered in an era of painful adjustment. Thereafter, in the aftermath of the NASDAQ bust, Mr. Greenspan helped ignite America’s housing boom and we all know how that story ended. To make matters worse, the US Dollar also topped out in 2001 and for almost 10 years, holders of American assets also suffered due to currency devaluation.
It is interesting to observe that during America’s painful decade-long adjustment period, the developing economies (primarily due to China’s historic fixed-asset investment binge) grew at an impressive pace and the commodity-producing nations enjoyed bonanza years! In fact, China’s entry into in the World Trade Organisation in 2001 was primarily responsible for this unprecedented boom and this era of prosperity created enormous wealth in the developing world. Thus, during the previous decade, investors gorged on the stock markets of the developing nations and bid up their currencies. Furthermore, this love affair with China also prompted investors to buy commodities and this monumental bull market created additional problems for the commodity-importing developed world.
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