Gold and Silver Plunge: Was That the Final Part of the Downswing?

Przemyslaw Radomski submits:

This essay is based on the Premium Update posted on January 21st, 2010

Although the picture this past year has been bleak, there are plenty of bright spots around the world. We touched on this point in one of our recent essays, and we would like to elaborate further. In economic terms, this decade was very kind to countries like China, India, Brazil and Indonesia. If you exclude the U.S., they also happen to be the four most populous nations in the world (The U.S. ranks third.) Together, they account for more than 40 per cent 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 percent and 2 percent will determine whether the standard of living is doubled every 35 years, or every 70 years. A 5 percent 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 percent 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 are not that complex – you will 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 percent range annually. Brazil also had a good decade, with growth at times exceeding 5 percent 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 backwards, 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.

Read more »