I look forward to the day where I might be invited to attend the World Economic Forum in Davos. As an outsider looking in, it seems like the most exciting and impactful annual gathering this planet has to offer (not that I'm aware of other events held across the solar system or elsewhere). If I could only be a fly on the wall during the discussions of globalisation and the forthcoming challenges faced by policy makers and global business leaders. Sometimes, I feel a little narrow-minded in my little world of domestic venture capital.
But, to the point of this post. The fate of LTCM taught us a lot about global capital flows; and that the allocation of capital, consumption and production can (relatively) seamlessly flow to the destinations of highest return or comparative advantage. Ask China, they're clearly feeling it. And, they've reacted by successfully executing an open, trade-oriented development model. But, as the country matures, the Chinese are going to have to focus on developing a stable currency and flexible fiscal & monetary policy. Big changes are in store for this year.
I'm worried about imbalance of the United States in this global capital market. Our Fed has followed a policy of monetary accomodation over the past five years, and I continue to be concerned about our current deficit and real interest rates. Whatever action Mr Greenspan takes over the next months, and I predict certain needed courageous activity, the consequences are not going to be easy for anyone.
We live in exciting times...