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VIDEOPrecious Metals Ripe for Long-Term Purchases
By
Przemyslaw Radomski
Jan 21, 2010 3:10 pm
Plus, they may stop declining for a few days, providing short-term support.
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In economic terms, this decade was very kind to countries such as China, India, Brazil, and Indonesia. If you exclude the US, they also happen to be the four most populous nations in the world (the US ranks third). Together, they account for more than 40% of the world’s population. All four countries have made remarkable progress this decade in terms of economic growth and standards of living.
In any given year, an extra percentage point of economic growth may not seem like such a big deal. However, if taken over a longer period of time, the difference between an annual growth of 1% and 2% will determine whether the standard of living is doubled every 35 years, or every 70 years. A 5% annual economic growth means that living standards will double about every 14 years.
By the way, the above calculations can be easily approximated by the "rule of 70", which says that if you want to know how many years it takes for the GDP to double you take 70 and divide it by the growth rate (in percentage terms). For instance, 2% growth means doubling the GDP in 35 years, as 70 / 2 = 35. Although this may sound complicated, the true calculations behind this rule of thumb aren't that complex -- you can find more information here.
Moving back to the regular part of the commentary, Indonesia had solid economic growth during the entire decade, mostly in the 5% to 6% range annually. Brazil also had a good decade, with growth at times exceeding 5% a year. China and India have made extraordinary strides.
It seems that the US is losing its privileged place in the world, taking a step backward, while some of these countries, especially China, are taking a giant leap forward. It was White House Chief of Staff Rahm Emanuel who said about a year ago: “You never want a serious crisis to go to waste.” He was on to something. In some cases, the catalyst for setting these emerging powers on the road to economic reform and national resurgence was fiscal and foreign-exchange crisis.
For example, in 1978 China was desperately short of cash and Deng Xiaoping was more willing to liberalize the Chinese economy with ideas that promised to deliver faster growth and higher revenues. India embraced economic reform in 1991 when its government found itself with foreign reserves that were worth just two weeks’ worth of imports. The Indians had to send gold to London to secure an emergency loan from the International Monetary Fund.
Manmohan Singh, then finance minister and now prime minister, urged his colleagues to “turn this crisis into an opportunity to build a new India”. The rest is history.
The wealthier countries like China, India, Brazil, Russia, and Indonesia become, the more open customers there will be for new innovations and products. Also, from my point of view, there will be more customers clamoring for gold.
The verdict is still out on how this past decade will be remembered in history. It all depends on where you lived.
No positions in stocks mentioned.
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