Amid global turmoil, U.S. looks solid

Global investing remains important for Canadians, despite the fact that the world is becoming increasingly unstable. With risks ranging from sovereign debt and political upheaval to natural and nuclear disasters, one of the smartest places to invest might be close at hand.

The U.S. economy, despite all its troubles, remains the world’s most flexible and innovative and accounts for 25% of global GDP. It is far too early to count the Americans out, according to George Friedman, chief executive of geopolitical consultancy group, STRATFOR.

Speaking at Mackenzie University, the annual road show hosted by Mackenzie Investments, Friedman said the U.S. is just hitting its stride.

Friedman dismissed the claim that the 20^th Century was the “American Century” pointing out the country remained a bit of a backwater until the European powers were virtually destroyed in the Second World War.

Even then, the U.S. faced a formidable foe in the USSR, and the outcome of the Cold War was never certain until the Soviet Union collapsed on December 31, 1991. Only then could the American Century truly begin, and he believes history will see the 21^st Century as the height of U.S. power.

While there has been a great deal of attention paid to the BRIC nations, their combined GDP totals $8.4 trillion per year, far short of America’s $14.4 trillion.

The “de-industrialization” of the American economy has dramatically changed the face of the U.S., he admitted, but industrial output is still double that of China.

Talk of China challenging the U.S. as an economic superpower is overblown, because the Asian giant has already lost its primary advantage of cheap labour; wages in Mexico are 20% lower than in China, and Vietnam’s wages are 40% lower.

China’s large un-invested reserve of U.S. currency only proves that its economy is unable to metabolize capital, which will inevitably lead to higher inflation.

Domestic consumption remains a challenge in China, despite its massive population. Freidman points out that roughly 1 billion Chinese live on household incomes of less than US$6 per day. The middle class—globally defined as those with household incomes of at least $20,000—consists of just 60 million, or less than 5% of the population.

Turning to the so-called “Arab Spring” he said the uprisings that swept North Africa and the Middle East in recent months should not be mistaken for democratic revolutions.

Egypt underwent more of a “soft coup” with the army overthrowing president Hosni Mubarek because he was trying to install his son as his successor. With Mubarek out of power, the first acts of the military junta were to suspend the constitution and to dissolve parliament.

With unrest now fizzling in the Middle East, Friedman says the real threat comes from Hamas, which has been trying to provoke Israel into a conflict violent enough to reignite anti-Israeli sentiment in Arab states seen as “soft” on Israel—including Egypt and Saudi Arabia.

“The Middle East is a dangerous place again,” he warned, asking the audience to imagine what would happen to the price of oil if the Saudi regime were toppled.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.