As the global economy realigns along unfamiliar coordinates, it’s fascinating to observe some of the changes occurring in real time.
For as long as most of us can recall, the US economy was the world’s primary economic driver. Americans consumed prodigiously, and the rest of the world catered to the voracious appetite. At the same time, American treasuries were being bought by the same economies — such as China and the oil-producing jurisdictions of the world — that exported goods to the USA. The exporting nations supported US debt as long as US consumption could keep the global party hopping.
Parties, though, often end with their most passionate participants nursing debilitating hangovers.
The system worked well until it stopped working. The government and people of the USA got overleveraged, and now deleveraging is ensuing even as the world looks for new markets to function as consumers of last recourse. The transition will not happen overnight; it will take time. There will be hiccups, and probably worse, along the way.
Increasingly, though, China is emerging as a key consumer, taking weight from the slumped shoulders of financially enervated Americans. This is a positive development, because the world needs buyers as well as sellers for its goods and services. If Americans will consume less, then somebody must step up to consume more. Slowly but surely, China is growing into that unfamiliar role.
How can you tell? Look at what happens in the world’s markets each and every day. Foreign bourses now take their cues as much from Shanghai as from Wall Street. Oil prices rise and fall as much on demand signals from China as from the United States. The stock prices of manufacturers of heavy machinery, automobiles, airplanes, and technology products and services increase or decrease on the relative strength of Chinese demand.
The economies of the world are going through enormous changes. It isn’t business as usual anymore, including in the information-technology industry. It’s time to reassess all our assumptions about how the world works.