Thursday, 26 February 2009

The Eastern Connection

There are times when the future simply unfolds in front of us, and this is one of those times. Three recent stories help to highlight that future. First, we learned on Sunday that RBS - a 282 year old bank in the UK - was subject to record losses that would result in making the company vulnerable to vulture funds (see story). Second, the losses turned out to be in line with those leaked to the press at the weekend (see story). And finally, by coincidence, there happens to be a delegation from China that is in Europe to buy distressed assets (see story).

In this one sequence we can see two major trends into the future. the first trend is the shift in the locus of the world economy eastwards. The mechanism by which China will establish itself as a major power will be through the purchase of European and American assets. In recent years, there has been resistance to this. The resistance will melt away in the face of the choice of either domestic redundancies or foreign ownership.

The second major trend is that of realignment in the economies of the world. Bottom feeding does serve a useful purpose in redistributing assets from those who don't know how to use them into the hands of those who do (see post). This periodic 'creative destruction' is an essential part of renewal. It is the capacity for renewal that make capitalism such a resiliant system.

In terms of where we are in the cycle of renewal, the appearance of bottom feeders and vulture funds is quite positive. It shows that the system is working and that we are once again moving forward.
Three cheers for that!

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