Thursday, October 28, 2010

De-Coupling is Alive and Well

From Prudent Bear.

"...the world is learning that the U.S. consumer is a drag on the world economy, not an engine for growth. As "decoupling" becomes more apparent, emerging economies are forming trade links among themselves, accelerating the process of decline for the United States.

To get a better understanding of how decoupling works, it helps to picture a train in motion. Together, the cars and engine travel together on the track. Now imagine that last car, the caboose, detaches from the rest of the train. At first, the caboose travels at nearly the same speed as the rest of the train. The distance between the two is hardly discernable. Over time, however, the car slows down as friction and gravity take their toll. Meanwhile, the engine powers ahead. The distance between the caboose and the train gradually becomes greater and greater, until finally the engine is gone from sight, leaving the caboose sitting idle on the track."


"As trade links grow between countries far from our shores (such as those being solidified between Asia and South America), the distance between the United States and the rest of the world is becoming larger, and decoupling is becoming more and more pronounced."


"Economies that have long enjoyed a trade surplus are now less likely to loan money to broke and bloated deficit economies such as the United States. They are now more inclined to consume their own production or trade with other exporting nations. Indeed, China is now the largest trading partner for several of the world's major economies, including Japan, South Korea, India, Hong Kong, Taiwan, Australia, Russia, and Brazil. Slowed by the gravity of excess debt and the friction of increasing taxes and regulation, the American caboose is straining to keep up."


"The trend also extends to producers of the single most important commodity in the world: oil. According to the Department of Energy, the U.S. imports over 60% of its oil consumption; however, new production is increasingly being diverted to international markets, leaving our country vulnerable to 1970s-style shortages."


"Whether you are looking at ASEAN, OPEC, or the EU, it is clear that decoupling is the order of the day. The world economy is rebuilding itself with China as its engine and hub. This is the essence of decoupling, and until recently, it was thought by many respected figures to be impossible.

In the old days, it was said that when the United States sneezed, the rest of the world caught a cold. This time, they might just excuse themselves and move to the next car."


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