Remember Globalization?

If your business plans hinge on the continued rolling forward of the globalization bandwagon then you had better draw up a contingency plan (regular readers of this blog will have already prepared such plans).

The news[1] that the US Fed will engage in a second round of quantitative easing (“QE2”) could well take the wheels off the bandwagon.  Many countries don’t want this flood of extra money that will put downward pressure on the dollar and upward pressure on other currencies including the Yen and (unfortunately for the PIIGS) the Euro[2]. This could put some economically vulnerable countries facing the twin challenges of austerity measures and macro-economic restructuring into a decade-long recovery period.

Retaliation from the stronger emerging economies could follow and deflation in Europe[3].

The next six months are the ones to watch.  By June next year we will know whether or not we are returning to the past.

Start planning now.

[1] Harding, R. US Fed Launches fresh Stimulus. Financial Times. 3 November, 2010
[2] El-Erian, M. Quantitative Easing Likely to Backfire. Financial Times. 3 November, 2010
[3] Roubini, N. Only the Weak Survive. Project Syndicate. 14 October 2010

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