Decoupling: Alive and WellWhile the US economy continues to weaken (see my recent commentary: Don't Doubt the Double-Dip), many foreign economies continue to experience solid -- even spectacular -- economic growth. When the global economic crisis began in 2008, many forecasters doubted that the world economy could return to growth without the US consumer. But the world is learning what Peter Schiff has long predicted: that the US consumer is a drag on the world economy, not an engine for growth. As "decoupling" becomes more apparent, emerging economies are forming trade links among themselves, accelerating the process of decline for the United States.
To get a better understanding of how decoupling works, it helps to picture a train in motion. Together, the cars and engine travel together on the track. Now imagine that last car, the caboose, detaches from the rest of the train. At first, the caboose travels at nearly the same speed as the rest of the train. The distance between the two is hardly discernable. Over time, however, the car slows down as friction and gravity take their toll. Meanwhile, the engine powers ahead. The distance between the caboose and the train gradually becomes greater and greater, until finally the engine is gone from sight, leaving the caboose sitting idle on the track.
This process describes how many of the world's economies are steadily pulling away from the United States. As trade links grow between countries far from our shores (such as those being solidified between Asia and South America), the distance between the United States and the rest of the world is becoming larger, and decoupling is becoming more and more pronounced.
While the US economy sputtered to a 1.6% growth rate in the 2nd quarter (Q2), many Asian countries rapidly pulled away, powered by trade with each other and the rest of the world. In Q2, China's economy grew a startling 10.3%. Americans would be thrilled with growth half that rate. Asia's second rising star, India, expanded by a solid 8.8%. The Four Tigers also posted excellent numbers: Hong Kong grew at a 6.5% clip, South Korea at a faster 7.1%, and Taiwan at 12.53% -- while Singapore clocked an astonishing 18.8% growth rate! If that's not decoupling, I don't know what is.
In the old days, it was said that when the United States sneezed, the rest of the world caught a cold. This time, they might just excuse themselves and move to the next car.
http://www.financialsense.com/contributors/neeraj-chaudhary/decoupling-alive-and-well
