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Banking

The New Economics Arms Race

The US is buried under a mountain of debt, much of it owned by past or current enemies. The ageing, ill man of Europe gets older and sicker. New economies of the Middle East, Latin America, emerging Europe and Asia are using windfalls to build for the future, and exert their influence across the globe. This is the new financial order. Markets will never be the same again.

Surging exports and high oil prices have delivered huge financial wealth to emerging countries over the past four years. Their central banks and sovereign wealth funds have swiftly accumulated vast reserves and become key creditors to the indebted US in a stunning reversal of the old world economic order. Today, if you’re a country in financial trouble, forget the IMF: better to go to one of your rich neighbours for a handout. Saudi Arabia can prop up Lebanon: Venezuela can underwrite debt for Argentina. And countries such as China and Russia may soon be demanding an IMF or a Paris Club of their own through which to monitor the policies of spendthrift and low-growth countries in Europe and America. But the greatest challenge for these countries is to diversify beyond US treasuries and euro government bonds. They must use their windfall paper wealth to acquire real assets, to attract greater economic activity within their borders as quickly as possible. Peter Lee reports on an economic war in which geopolitics will divert global capital through new channels.
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IT MIGHT HAVE been a deliberately provocative suggestion, designed principally to highlight the dramatic changes in the world economic order that can sometimes be lost amid all the dry and conceptual debate about global financial imbalances.

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