While the U.S. has been on a credit funded spending spree for 17 years, the countries known as the BRIC’s (Brazil, Russia, India and China) have been saving up for a rainy day. With more than $3 Trillion in government reserves, they could potentially come to the rescue of the overextended developed world. But will they?
As the lessons of the Great Depression have taught us, the greatest threat to come is that of deflation. If the spector of a worldwide fall in prices materializes, the BRIC’s may have no choice but to save themselves, before they deploy their reserves in the West.
From Asia to Latin America, exports are slowing and should continue to do so as the global appetite shrinks. This is spawning fears that major producers like China and India — which vastly expanded production capacity in recent years — will have to dump products on world markets to keep factories running and stave off unemployment, pressing prices lower.
Faced with high unemployment and potential civil unrest, I am guessing that the BRIC’s will spend their money at home rather than buying US Treasury Bills.