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Coupling and Decoupling in Davos.

Posted by: Bruce Nussbaum on January 23, 2008

The most serious discussion on the first day of the World Economic Forum at Davos is whether or not Europe, Asia and the rest of the globe can “decouple” from the declining US economy. I went to a great session called “When the US Sneezes…” where this was hotly debated.

C.Fred Bergster, of the Peterson Institute for International Economics and an old hand at global economics said “reverse coupling” is under way. US companies, such as IBM, GE and Caterpillar, see their US growth falling but their overseas growth in Asia and the Middle East rising even faster. So the faster-growing emerging markets are mitigating the decline in the US economy that is taking place because of the housing/subprime financial crisis.

Michael Klein, Chairman and co CEO , Markets and Banking, Citi, gave a brilliant talk on the greats shifts under way in the global economy. Wealth and ownership are moving away from the US and Europe toward the Middle East, China and Russia, thanks to the sharp rise in commodities prices and the move of manufacturing away from the west are having tectonic affects.

This is all happening with another significant sectoral change—the true globalization of financial markets in the last five years. That means that the walls between emerging markets in Asia, the Middle Easgt and the US and Europe are down. There is a free flow of capital, labor and goods. This is accelerating the big shifts in wealth and ownership—and power—underway.

This big shift is triggering a backlash. Europe is angry at the US rating agencies and the subprime mess that is melting down their stock and credit markets. The US is worried about the Sovereign Wealth Funds that are buying into American banks and companies.

The final big shift taking place is the movement of wealth, ownership and power away from democratic governments toward non-democratic governments. This is hugely important and plays into the worries about Sovereign Wealth Funds that are controlled mostly by one-party state, China, Middle East shieks and the KGB-governed Russia.

Think about it.

Reader Comments

Paul Stobbs

January 25, 2008 1:46 AM

Life is like a bank. The more you put in it the more you get out of it. America has been consuming more than they have been producing for years. Ask the English what happened to them in the late 70's. Think USA would have learnt from this but apparently not.


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