Planning For It!

World Economy Deformed!

 

How All Started

world_economyLet’s start the story from the starting of year 1900. It was a period when colonial age of European countries was getting over. The world wanted to grow as fast as it can, the economic race was running in the vein of whole Earth. Soon, the spaces in the economic path became narrower and fight for dominance brought the World War I. At the end of First World War, the winning countries found that they have not earned anything from the whole chaos. The World economy was still shaky and finding way for better future. The dominant countries thought there’s no meaning of war until anything worth being achieved to rule the world. The thought of dominance took the world towards the World War II. At the end of the Second World War, the US and USSR emerged as bosses of the world. The US took strategic control over the world by utilizing dollar as the World’s currency and hence controlling the majority energy produced by other countries. Time passed, and USSR broke into Russia and other small countries. Finally, US became the single superpower of the world. The United States continued to over utilize dollar for controlling the World. Slowly, the other countries realized the importance of economic growth. The growing countries formed groups to fight the dominance of developed countries. Groups like BRICS, SAFTA and EURO zone snatched the dominance of the longest ruled super power, i.e. United States. Countries also realized that they are buying US treasury bonds (US Debt) for the luxury of American comfort as the US started sweating to repay the debt. The control of US over the world energy market started crumbling due to tension in South-East Asia. The world economy by now had seen The World War I and II, The Great Depression, The Gulf War, The WTC Collapse and now experiencing The Great Debt Crisis.

Current scenario

The story began with dominance, growth and power. The story is still the same. One who holds the ENERGY rules the world. The United States and its alliance have started to use its muscle for Energy dominance by showing its intention to put fresh UN sanctions on Iran. The Russia and China have already declared its intention to block any type of resolution against Iran to impose sanctions in the UN. The debt crisis is deepening in the Euro Zone as there’s no relief enough to sort out this problem. Many large debt instruments are maturing in the year 2012. The inflation is not cooling down significantly anywhere in the world. All measures taken by the central banks of major economies have boomeranged. The fastest-growing economies like China, India and Brazil have shown signs of slowing down.

What Next?

The World is heading towards a deep confrontation for Energy, Food and Security. For secured growth, the crude oil’s faster accessibility has pushed its rate higher and availability is scarce. The higher-energy price has resulted in higher food price. Now, to balance its domestic condition, all the economies are making efforts to gain the energy supply. Since crude oil is a scarce commodity, it would not be possible to ensure proper supply at low price to all the countries. This energy confrontation would decide the economic shape of a new world, new era with the emergence of powers that will dominate the world economy. The action of US on Iran and China on South China Sea has already surfaced as the fight for energy dominance. The developed nations are looking at new ways to dictate the world and selling cleaner technology for low carbon emission to the developing nations, seems part of its strategy. The developed nation tactics to capture the world agriculture market has already been blown after several WTO Doha rounds. The push and pull for agriculture, energy and security has just started creating unrest in the world.

For Investor

The risk averting investors should wait for situations to improve and income pace becomes normal to enter in the market. Investor who dares to take a risk can start targeting fundamentally sound companies to buy cheap during deep corrections in coming days. It is always advisable to buy when things are available at throw away price and sell at a stubborn high. Despite suggestion given above, I am inclined to caution a contrary statement for uninformed investors: “In a situation where money is hard to come, uncertainty is looming everywhere and words have lost the value; it is better to stay in cash then to invest and lose all."

About the author

Amit Sethi is an MBA (Fin) graduate. He has spent 8 years in Equity research and Stock broking sector. He can be reached at amvilube@gmail.com

Published Dec 14 2011

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