Young readers may barely remember this, but only a short fifteen years ago or so the world looked much, much differently. The political landscape consisted of two powerful, monolithic assemblies of nations: us - the ‘Free World?- and them ?the ‘Communist Bloc? The United States and Western Europe formed the bulk of the countries of the Free World while Soviet Russia, Eastern Europe and Maoist China formed the bulk of the Communist Bloc. As to the remainder of the countries which did not belong either to the Free World nor to the Communist Bloc, they were collectively referred to as the Third World ?which included those nations such as Saudi Arabia who were aligned with the Free World on Mondays, Wednesdays and Fridays and with the Communist Bloc on Tuesdays, Thursdays and Saturdays. And then there was the Fourth World ?also known as the No Brand World ?which neither the Free World nor the Communist Bloc wanted to touch with a ten-foot pole.
Then somebody in Russia began to whisper the words glasnost and perestroika (it was Gorbachev who started first), then somebody in Germany began to yell Vereinigtes Deutschland and to make a long story short in the round of five years there was no more Iron Curtain and no more Soviet Russia. It was the remarkable end of an era of political attrition and economic division lasted more than fifty years, and the onset of a new period in the history of humanity now referred to as globalization. Globalization is unquestionably a democratic concept that puts all mankind on the same platform. In Economics we have a special sentence to describe this process of equalization: we call it ‘Democratization of Wealth?. The distribution of wealth throughout all nations would be a flawless concept ?in a perfect world, that is. But as the younger readers I was referring to before may have began to discover already, Planet Earth is not a perfect world. There is a hidden cost to globalization that is beginning to manifest itself more and more in our daily lives. Increasing interest rates which are now beginning to affect, first and foremost, the real estate market are possibly one of the best examples of it. Not because real estate is a special market per se, but because real estate involves the buy and sell of big-ticket items.
Here is the problem: there are on the world stage new economic players, which by and all in itself is not a new phenomenon. Since the early Nineteenth century, many countries have, at different times, emerged as major forces on the international economic scene. During the 1830s, productivity gains associated with the Industrial Revolution launched the United Kingdom as an economic powerhouse. Germany and the United States followed in the latter part of the Nineteenth century, by adopting the new technology of the time, as did Russia for a while before the First World War. Through the 1950s and 1960s, Japan emerged from the Second World War to become a major economic power. Then Korea took off in the 1970s, followed by other so-called "Asian tigers" during the 1980s and 1990s. Now, it is China's turn. And India is not far behind.
What differentiates China and India from these other countries is their sheer size. Together, these two countries represent close to 40 percent of the world's population. By comparison, Japan accounted for only 3 per cent of the world's population at the time of its emergence as an economic force. What is also breathtaking is the speed of China's rise to economic prominence. In 1980, the Chinese economy produced less than 3 percent of global output. By 2003 this share had risen to more than 13 per cent, roughly half that of the United States. In fact, China is now the fourth-largest exporter in the world, having surpassed Canada in 2001 and the United Kingdom and France in 2002. As for India, while its economy is also very large, equivalent to about a quarter of that of the United States, it is not yet a major global exporter. But, with advancements in communications and with a large number of well-educated workers, India is establishing itself as a significant and growing presence in the international service industry.
Not surprisingly, many perceive the growing competition from China and India as a significant threat. And some are wondering how anyone can compete against countries that have such huge pools of cheap labor and access to the latest technologies. It was a combination of demand for inexpensive products and domestic competition that has spurred companies to open subsidiaries to produce goods and services in China and India so as to take advantage of an almost inexhaustible pool of cheap human resources. A process this, that has come to be known as ‘outsourcing? Outsourcing, from a strict economic perspective, is not an entirely negative phenomenon. Robust economic growth in Asia, which is lifting hundreds of millions of people out of poverty, is creating more demand for goods and services from the industrialized countries, thus providing a much-needed boost to global economic growth. Indeed, preliminary data for 2004 suggest that China may have vaulted into third place among the world's most important importers, behind only the United States and Germany.
This fact notwithstanding, however, the end result of a supply of outputs created in China and India destined to quench the huge demand of the preeminently American consumerism has generated large trade imbalances. The flip side of these imbalances has been a sharp rise in the net foreign liability position of the United States and a massive accumulation of foreign exchange reserves by the Asian countries. China has amassed more than US $450 billion of reserves. India too has seen a marked rise in international reserves, to roughly US $150 billion. Even more striking, as of the end of 2004, all of Asia (including Japan) had accumulated US $2.1 trillion in foreign exchange reserves. Subtracting this quantity of Dollars from the economic monetary cycles forces the U.S. Government to borrow more and the Federal Reserve System to print and lend more money with the deleterious effect of diminishing the purchasing power by weakening the strength of the currency. Think of a glass of wine where you keep on adding water. Higher international demand for American Dollars created by outsourcing, foreign savings, fixed exchange rates and a huge trade imbalance account for a large proportion of the refueling of domestic inflation and the consequent interest rate increases, the effect of which is now patently felt all over real estate markets in North America.
Luigi Frascati
Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.
Luigi is very proud to be an EzineArticles Platinum Expert Author. Your rating at the footer of this Article is very much appreciated. Thank you.