There is something vaguely odd and actually quite comical about the sight of a Hasidic man, head to toe in black with a wildly elaborate fur hat perched on top of his ringlets, sweating in the warmth of Montreal’s Indian summer. The attachment to early 17th-century Eastern European clobber in the 21st century, seems a bit over the top. However, according to a friend of mine who knows about these things, the hat, its size and shape, denotes precisely what sub-branch of the Hassidim this man belongs to.

As with any exclusive club, like the scouts, the freemasons or the orthodox religious of all hues, little rites and rituals that seem entirely incongruous to the outsider are of existential significance to an insider. Within the Hassidim, apparently, the type of hat speaks volumes.

The fur hat – hugely popular in Europe centuries ago – reminded me as to why this great island city, plonked in the middle of the giant St Laurence river, became wealthy in the first place. The fur trade dominated the colonial history of North America from the 1650s to the 1800s. The centuries old fight for Canada between the French and the British centred on grabbing the wealth of the fur trade. The French settled here in Quebec after the adventurer Jacques Cartier landed in Montreal with the help of the local Indians in 1653.

Within decades of the first beaver pelts arriving from Canada, fashionable Europeans couldn’t get enough fur from North America. Enormous wealth accrued to the centre of the fur trade, Montreal. The St Laurence river was the main artery of the trade, with Indians and French trappers using canoes in the tributaries of the great river to bring the pelts to Montreal and from here fur was shipped out to Europe. By the mid-1900s, European fashion had changed, and gradually the public wearing of resplendent fur hats became the preserve of the environmentally tasteless and the obscurely religious, like my friend here in front of me in Montreal.

However, part of the legacy of the great fur trade is the province of Quebec and its French population.

Like any emerging market, Quebec of the 18th and 19th centuries, grew rapidly based on having a new product and availing of the newest technologies of the time in river transport and intensive production. This propelled the growth rate of the new territories in America. Eventually, the living standards in emerging markets of North America caught up with and then overtook those of Europe.

As we look around the world today, have we any reason to believe that, over time, the emerging markets of Asia, Brazil and parts of Africa will not catch up and overtake the West?

In maths, there is a concept called the 7 per cent rule. It explains exponential growth and why a quantity can grow experientially when its increase is proportional to what is already there. So for example, think about compound interest, where €100 invested at 7 per cent per year annual compound interest will double in ten years to €200, double in another ten years to approximately €400 and double again in the next ten years to approximately €800.

The same happens to economies and living standards. If an economy starts to take off, its living standards can double very quickly, if that growth rate is sustained.

Historically, the key to growth is technology and discovery. This is why for example in the 2,000 years from Alexander the Great to Napoleon, general living standards rose by only about 70 per cent – because there was hardly any technological innovation.

In contrast, once the industrial revolution took off, the living standards in Britain and much of industrial Europe doubled every few of decades. Now with technology widely available to the huge emerging markets of the world, there is a possibility that living standards in India, China and Brazil will double in every generation. And all the while, their living standards – boosted by their growth rates – will catch up and surpass the West because they will be making things, they will be manufacturing material at a rate that is likely to be more productive than that in the West.

As a result, we are seeing and will continue to see a migration of manufacturing and wealth to these countries, replicating exactly what happened vis-a-vis North America and Europe from the beginning of the 19th century on.

This ongoing process is having profound implications for the structure of industry in the West and for job opportunities in the future in the developed countries.

The reaction of the West to this process has been bizarre. For example, in the US the reaction has been to print money, in the hope that printing money might kick-start the economy into life. This week we are seeing nerves deep inside the Federal Reserve, the US central bank, which is worried that the policy is working but not quickly or robustly enough.

The financial markets were expecting the Fed to “taper” this week.

Tapering means the Fed was widely expected to reduce the amount of money it was printing each month from $85 billion to $75 billion and gradually it would reduce its money printing policy totally as the unemployment rate fell to 6 per cent in the US.

But the Fed signalled that the US economy was still fragile so it would hold off from doing anything.

Let’s stand back and look at what is happening from a bit of altitude.

Injecting $85 billion a month is $1 trillion a year. That’s $1 trillion a year into a $16 trillion economy. This is a phenomenal stimulus. Yet it mightn’t be working.

The money is not getting out from the banks to the real economy, and might be only driving stock markets higher. This is making the already wealthy even richer.

We have a serious dilemma. We know from the history of Montreal and elsewhere that emerging markets with the right technology and some competitive advantage, can grow very quickly and double the standard of living of their citizens extremely quickly. We also know that the Asian economies are best positioned to mirror the 19th-century Montreal experience in the next 50 years. So where does that leave the West?

What if our collective policy response to globalisation, which has amounted to massive monetary expansion is neither making our economies grow nor diminishing inequality but is doing the opposite? What if the Fed’s policy of quantitative easing is simply making the 1 per cent richer and is not trickling down to the average guy? And what if the recent blips in emerging markets growth in India, Brazil and elsewhere are blips and they are destined to overtake the West in time, in the same way as Canada overtook its colonial master Britain?

These are questions we should be asking in the wake of the Fed’s decision to plough on with money printing this week. Unfortunately, reading the financial press with its gushing reports about soaring stockmarkets, the deeper questions are not even being asked, let alone answered.

There is an almost cult-like belief in the omniscience of the central banker to cure our ills.

Maybe my friend with the furry hat isn’t that odd at all. After all, his unquestioning belief in his faith only mirrors the global financial markets unquestioning belief in Bernanke. When everyone is singing of the same hymn sheet, it is time to question everything.

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