Emerging Markets Are Draining Cash From Developed Countries

by: Babak

That giant sucking sound you hear in the background is the emerging economies vacuuming up all the cash from developed economies. Nothing shows it quite as clearly or as strikingly as the following map:

Global Money flows
Source: Wikipedia

The map shows each country by gold and foreign currency reserves minus external debt. It is based on 2009 data from the CIA Factbook (click chart for a much larger version in a new tab).

Europe and the US are deep red while emerging economies like China, Brazil and Saudi Arabia are green. I was surprised to see Japan not in the red. But the other developed countries such as Norway, Canada and Australia were orange. No surprise there as these countries have benefited from the secular bull market in commodities.

Just recently BHP Billiton (NYSE:BHP) (an Australian conglomerate) launched a hostile bid for Potash (NYSE:POT) (one of Canada’s largest public corporations). The bid was quickly rejected but BHP hasn’t given up.

In any case, these two themes; secular bull in commodities and emerging markets overtaking developed ones, are broad strokes that don’t affect the markets within a short period of time. But make no mistake, such slow moving trends have staying power and they will remake the global financial landscape before they are done.