Several weeks ago I sent you a video commentary on how important money velocity is and why Dr. Lacy Hunt is the master of this concept, which I now call the “acid test” for developed and emerging country economies.

The point you should take away from that video is that money velocity is falling almost everywhere. When that happens, it’s a clear sign of speculation in investment and the inflation of debt and financial asset bubbles.

This scenario NEVER ends well.

In that video, I described how the U.S. was the best house among the leading developed countries like Europe and Japan, despite our falling money velocity since 1997. I talked about China being the lowest!

Here’s a chart showing the money velocity of the four largest emerging country economies: China, India, Brazil, and Indonesia.

Look at Indonesia.

The Rising or Falling Emerging Country

It’s the only emerging country with rising velocity into 2008, reaching to 2.90. It’s since fallen modestly to 2.63, which is still healthy and higher than the best developed countries! Indonesia is at 55% urban and has decades of growth to come. It’s workforce growth trends don’t peak until around 2055.

Brazil’s money velocity peaked the highest at 5.0 in 1997. It was still as high as 4.75 in 2004. That’s when Brazil was at its best, moving into peak urbanization. It went from 82% urban in 1995 to 86% urban in 2010 and has made little progress since.

The South American country has fallen to 2.83, at which point it is still the highest of this group. It also still has modest growth in workforce trends into 2035, before slowing longer term.

The emerging country with the lowest urbanization, at 34%, and greatest demographic growth potential is India.

It doesn’t peak in workforce until 2050-55.

It should see its urbanization accelerate when China fails and makes way for India to become the next “big thing.”

But, India’s money velocity peaked in 1996 at a modest 2.10 and has fallen down to 1.26! That’s lower than the U.S., although higher than Europe.

The Problem Here Is Simple…

India has underinvested in infrastructures and capital goods like plant and equipment.

That underinvestment makes the return on all investments lower because everything, from travel to communication to logistics to electricity access, is harder in India. I know this for a fact because I’ve been there three times, spending longer than two months there.

Thankfully, things are changing there, and fast! And that’s a great sign given its un-ending urbanization and demographic potential.

But, like I said on Friday, China is the worst “money velocity offender” by far.

It peaked in 1990 at an already dismal 1.50 and is at a pathetic – even coma state – of 0.52 currently.

How does the fastest-growth, major emerging country in the world and second largest economy flunk the “acid test?”

By Cheating!

By endlessly building “stuff for nobody” – empty condos, malls, and offices everywhere. 22% of homes are empty by a comprehensive new study.

The cardinal sin in business is overbuilding because it creates high debt and fixed-cost burdens that sink your profits and ultimately drown you.

This is why I see China taking a decade to work off its excesses.

This is why I see China enduring the worst crash of the leading countries ahead.

INDIA is where the future money is. And next, countries like Indonesia in Southeast Asia.

NOT China… at least for a good while.

I’d bet money on it.

Follow me on Twitter @harrydentjr

Harry Dent
Harry S. Dent Jr. studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of his chosen profession that he turned his back on it. Instead, he threw himself into the burgeoning new science of finance where identifying and studying demographic, technological, consumer and many, many other trends empowered him to forecast economic changes. Since then, he’s spoken to executives, financial advisors and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics and Omni. He is a regular guest on Fox Business’s “America’s Nightly Scorecard.” In his latest book, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage, Harry Dent reveals why the greatest social, economic, and political upheaval since the American Revolution is on our doorstep. Discover how its combined effects could cause stocks to crash as much as 80% beginning just weeks from now…crippling your wealth now and for the rest of your life. Harry arms you with the tools you need to financially prepare and survive as the world we know is turned upside down! Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research, in his flagship newsletter, Boom & Bust.