Economic Death Spiral Has Been Triggered, May 28 2011

Submitted by Gordon T. Long
Zero Hedge
For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended.  It is now in the process of reversing and becoming a vicious downward economic spiral.

One of the strategies is the Asian Mercantile Strategy.  The other is the US Dollar Reserve Currency Strategy.

These two strategies have worked in harmony because they fed off each other, each reinforcing the other. However, today the realities of debt saturation have brought the virtuous spiral to an end.

One of the two global strategies enabled the Asian Tigers to emerge and grow to the extent that they are now the manufacturing and potentially future economic engine of the world.

The other allowed the US to live far beyond its means with massive fiscal deficits, chronic trade imbalances and more recently, current account imbalances. The US during this period has gone from being the richest country on the face of the globe to the biggest debtor nation in the world.

First we need to explore each strategy, how they worked symbiotically, what has changed and then why the virtuous cycle is now accelerating into a vicious downward spiral.




ASIAN MERCANTILE STRATEGY
The Asian Mercantile Strategy started with the emergence of Japan in the early 1980s, expanded with the Asian Tigers in the 90s and then strategically dominated with China in the first decade of this century.

Initially, Japan’s products were poor quality and limited to cheap consumer products. Japan as a nation had neither the raw materials, capital markets, nor domestic consumption market to compete with the giant size of the USA.

To compensate for its disadvantages, Japan strategically targeted its manufacturing resources for the US market.  By doing this, the resource poor island nation took the first step in becoming an export economy – an economy centered on growth through exports versus an economy like the US, where an excessive 70% of GDP is dependent on domestic consumption.