Monday, December 21, 2009

One World Economy

I just read this article, The Global Imbalances Myth, in this morning's Wall Street Journal. The author addresses the current rhetoric that we are in trouble because the world economy is "structurally imbalanced", the idea that if America consumes everything and China makes everything, the result will be economic disaster. This is an idea that I do not believe in, as I think the best way to look at the world is as one interconnected global economy.

The issues of what will happen economically over the next several years, what role China will play, what will happen with the mounting US debt, etc.. are all important, and our views one these issues will shape how we manage our clients financial and investment plans. Here is a quote from the above referenced article that sums up my thinking on these issues:

"Today's consensus sounds very much like the orthodoxy of yesteryear - let each nation be its own system in equilibrium, interacting with other systems to create one mega-balanced system. Yet such balance has only existed in theory and only ever will."

It is highly unlikely that the increased economic and social interconnectedness we have undergone over the past decades will change course. Like it or not we are all part of one global economy. It is important that we understand this as we think about how the future may play out.