The Broad View

Whenever economists discuss the world economy, they peg growth at somewhere between 3 and 4 percent. But in the US, we’re lucky to get growth of 2 percent. Why?

Until recently the US led global growth. Because our economy was open, transparent, and entrepreneurial, innovations in one place quickly spread through the rest of country and improved productivity, lifting both wages and profits. Think of just-in-time inventories, hub-and-spoke distribution, and GPS systems that route trucks so they minimize left-handed turns, saving gas.

But the US has ceded global leadership to the emerging economies: Brazil, India, and China. Our financial system became over-levered and over-concentrated on residential mortgages, so that a minor correction in one sector led to financial contagion and the destruction of about $300 billion in bank capital. The inevitable credit crunch that followed has crippled our economy.

Two Administrations tried to stimulate us out of this mess, but borrow-and-spend proposals belie the truth that you can’t spend your way to prosperity if you don’t have the money. The emerging economies came out pretty well because they already had the cash—they didn’t need borrow it to shore up their banks and stimulate their economies.

But the larger lesson is that the global economy is going to continue to grow. Leadership has shifted, but growth is still there. It’s based on the emergence of billions of workers into an aspiring middle class that want better lives.

That’s where the opportunities are in this new normal. The trick is to find companies and countries that know how to ride this new wave.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T20:22:26+00:00 September 9th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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