Paradigm Shift

The recent global economic meltdown not only showed how vulnerable the once mighty economic powerhouse called the United States is of its own follies. It also showed how the countries are dependent on each other and how the world has indeed shrunk. As the saying goes, when one country sneezes, the others will absolutely get the flu.

Being the biggest economy in the world, the United States was also the biggest consumer. It buys food from South America, cars from Japan, electronics from Taiwan, furniture from Europe and everything else from China. So great and lofty was the American life. The Federal government churned more paper money, financial institutions have all the portfolio to invest, banks loved to lend and people just bought whatever they wanted. No money, people just “swiped” it thanks to Mastercard and Visa.

But the artificial wealth soon caught up. People who did not really have enough money squandered their debts. Banks ran into trouble, people who have money in the banks went down next. Homes were gone. People lost jobs and stores were left without customers. As expected, the biggest manufacturers selling to the United States collapsed – Japan, China, Europe among many others.

Factories in China which used to produce anything from sneakers to jeans to laptops had to close down as Americans stopped buying. Farms in Vietnam that provided the raw materials were eventually affected. Japanese cars rotted in the docks as Americans lost jobs and could no longer afford a Toyota or a Honda. And the Arabs with their oil reserves went down as well. The domino affect was long and painful. Workers had to lose jobs, families went hungry, companies closed shop.

We all knew what happened. Taxpayers rescued the ailing financial system with loans. Governments all over the world bailed out companies, lending them cash so they fix themselves up. Some recovered. Many others were forced to sell their stakes to other companies so they can consolidate their remaining cash and assets and become a stronger company.

The tidying up process is still ongoing but we see specks of the coming good days. More people are getting jobs, small businesses are starting to get orders, government projects have increased providing more cash into the economy. Indeed, it is just a matter of time when things will be better again. But will go back to what it was once before? Perhaps not.

The biggest lesson in the entire catastrophe was the world’s unwise reliance on the American consumer and the American’s voracity to consume even without having the means. Putting too much of their eggs in one basket caused many businesses trouble when America stumbled. As for the United States, insatiable consuming behavior was cut down. Banks were more regulated and became more conservative. The dollar has never been so valued again.

All over the world, businesses have started to build markets in Russia, South America and China. They would not rely too much on American and their dollar anymore. This could be a start of a shift in world geo-politics with the United States losing its incredible clout of the old days. But maybe this is for the good. Wealth is spread everywhere and when trouble comes, at least more can run to each other’s aid.