Today is

By: Ikedi Ani-okoye

Author: Phil Thornton economics

Signs of economic depression

Are the economic tectonic plates shifting again? The US was the world's largest economy for the whole of the twentieth century. There are two visible trends - one gradual and the other more rapid - that point to a structural shift away from fhe West towards due East.

The first is the gradual but demonstrable rise in the economic polver of key countries outside the main power centre of the Group of Seven, mainly Western, nations: Canada, France, Germany, Italy, japan, doe UK and the US.

The global economic boom of the last two decades, combined with the process of globalisation and the fall of the Berlin Wall, led to massive increase in demand for natural resources and for people to produce manufactured goods and provide services.

Countries Economics

Several countries that had previously been outside the system sought to engage more fully in global capitalism. Five years ago Goldman Sacha, the US investment bank, identified four countries with the handy acronym of BRIC: Brazil Russia, India and China. Brazil and Russia, it said, would be dominant in the supply of natural resources; oil and natural gas in the case of Russia and soy, iron ore and more recently biofuel in Brazil. China and India would become the dominant suppliers of goods and services.

The popularity of the moniker spawned other acronyms, such as BRICA to include the Arabian Gulf's oil-based economies and BRICET that adds Eastern Europe and Turkey into the mix.

Goldman Sachs plotted a timeline to shows how China in particular would surpass the members of the G7 by 2050. In fact, economic historians have calculated that China was the World's largest economy in 18 out of the last 20 centuries. So while Chinese dominance might come as a shock to children of the twentieth century, it would do more than restore a natural order.

Economics in financial markets

But the turmoil in the Financial markets may herald a separate structural shift and mean that the process happens even more quickly than Goldman envisages. Banks across the western hemisphere have lead to write off almost $ 140bn because of reckless investments in complex structured products based on assets in the subprime sector of the US sector where home prices are falling. The G7 warns it may hit $400bn.

The scale of the losses and the attendant shattering of confidence have triggered widespread falls in share prices that have further undermined bands' capital bases. The sensible response has been to seek capital from new investors - the sovereign wealth funds.

As their name indicates, these are investment vehicles owned by governments that have built up large volumes of foreign reserves and are now looking to invest them. The Economist Estimates these funds have injected £69bn so far on recapitalising the rich world's biggest investment banks.

With up to $3 trillion of assets under Management, They are Three times die size of hedge funds - the bêtes noires of only a few Months ago - and could double within five years, thanks to oil wealth and Asian economic growth. The so-called Super Seven funds -Abu Dhabi, Norway, Singapore (twice), Kuwait, china and Russia - include two BRIC members two BRICA members, with the other two either based on natural resources (Norway) or Asian growth (Singapore).

There is a clear 'Easternisation' of the world economy and the fact is that the new dominant economies are exerting their power. This may be a painful process for western countries. After decades of becoming used to big name companies such as Coca Cola and Shell taking stakes in foreign businesses, the boot is on the other foot.

CONCLUSION

The fact is that developing countries have built up vast reserves of foreign assets, especially US Treasury bonds -IOUs issued by the Federal government to fund its current account deficit. This helped sustain the global boom by enabling the west to run large deficits. these countries, and particularly China with $ 1 trillion of reserves alone, wish to put those reserves to more imaginative ends. The wise reaction in the west is not to panic or throw up protectionist barriers but to examine more closely the values and business skills developed and used by these countries. They have certainly learnt from us - it is our turn to return fhe favour.