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petegz28
04-25-2011, 07:51 AM
BOSTON (MarketWatch) — The International Monetary Fund has just dropped a bombshell, and nobody noticed.

For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China.

And it’s a lot closer than you may think.

According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.

Put that in your calendar.

It provides a painful context for the budget wrangling taking place in Washington, D.C., right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.

According to the IMF forecast, whomever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.

Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.


China’s economy will be the world’s largest within five years or so.

But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.

That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.

The comparison that really matters
The IMF in its analysis looks beyond exchange rates to the true, real terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies.

Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.

Just 10 years ago, the U.S. economy was three times the size of China’s.

Naturally, all forecasts are fallible. Time and chance happen to them all. The actual date when China surpasses the U.S. might come even earlier than the IMF predicts, or somewhat later. If the great Chinese juggernaut blows a tire, as a growing number fear it might, it could even delay things by several years. But the outcome is scarcely in doubt.

This is more than a statistical story. It is the end of the Age of America. As a bond strategist in Europe told me two weeks ago, “We are witnessing the end of America’s economic hegemony.”

We have lived in a world dominated by the U.S. for so long that there is no longer anyone alive who remembers anything else. America overtook Great Britain as the world’s leading economic power in the 1890s and never looked back.

And both those countries live under very similar rules of constitutional government, respect for civil liberties and the rights of property. China has none of those. The Age of China will feel very different.

Victor Cha, senior adviser on Asian affairs at Washington’s Center for Strategic and International Studies, told me China’s neighbors in Asia are already waking up to the dangers. “The region is overwhelmingly looking to the U.S. in a way that it hasn’t done in the past,” he said. “They see the U.S. as a counterweight to China. They also see American hegemony over the last half-century as fairly benign. In China they see the rise of an economic power that is not benevolent, that can be predatory. They don’t see it as a benign hegemony.”

The rise of China, and the relative decline of America, is the biggest story of our time. You can see its implications everywhere, from shuttered factories in the Midwest to soaring costs of oil and other commodities. Last fall, when I attended a conference in London about agricultural investment, I was struck by the number of people there who told stories about Chinese interests snapping up farmland and foodstuff supplies — from South America to China and elsewhere.

This is the result of decades during which China has successfully pursued economic policies aimed at national expansion and power, while the U.S. has embraced either free trade or, for want of a better term, economic appeasement.

“There are two systems in collision,” said Ralph Gomory, research professor at NYU’s Stern business school. “They have a state-guided form of capitalism, and we have a much freer former of capitalism.” What we have seen, he said, is “a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That’s very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.”

The next chapter of the story is just beginning.

U.S. spending spree won’t work
What the rise of China means for defense, and international affairs, has barely been touched on. The U.S. is now spending gigantic sums — from a beleaguered economy — to try to maintain its place in the sun. See: Pentagon spending is budget blind spot .

It’s a lesson we could learn more cheaply from the sad story of the British, Spanish and other empires. It doesn’t work. You can’t stay on top if your economy doesn’t.

Equally to the point, here is what this means economically, and for investors.

Some years ago I was having lunch with the smartest investor I know, London-based hedge-fund manager Crispin Odey. He made the argument that markets are reasonably efficient, most of the time, at setting prices. Where they are most likely to fail, though, is in correctly anticipating and pricing big, revolutionary, “paradigm” shifts — whether a rise of disruptive technologies or revolutionary changes in geopolitics. We are living through one now.

The U.S. Treasury market continues to operate on the assumption that it will always remain the global benchmark of money. Business schools still teach students, for example, that the interest rate on the 10-year Treasury bond is the “risk-free rate” on money. And so it has been for more than a century. But that’s all based on the Age of America.

No wonder so many have been buying gold. If the U.S. dollar ceases to be the world’s sole reserve currency, what will be? The euro would be fine if it acts like the old deutschemark. If it’s just the Greek drachma in drag ... not so much.

The last time the world’s dominant hegemon lost its ability to run things singlehandedly was early in the past century. That’s when the U.S. and Germany surpassed Great Britain. It didn’t turn out well.

Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for The Wall Street Journal.

http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25?link=MW_home_latest_news

Royal Fanatic
04-25-2011, 08:04 AM
Perhaps this is a naive question, but I'll ask it anyway. China has about a billion MORE people than the United States. Is it really a disaster for the United States if China grows its economy?

If the purchasing power of the American people falls in absolute terms, then anyone would agree that it's a horrible thing. But if America's purchasing power falls in relative terms because China has expanded its economy, I'm not so sure that it's a bad thing. It might not be desirable for our interests, but if the standard of living for 1.3 Billion people is raised, I'm pretty sure they will think it's a pretty good thing.

I don't claim to be an expert on this, so feel free to point it out if I'm missing something here.

Chiefshrink
04-25-2011, 08:18 AM
When Nixon took us off the Gold Standard in the early 70's it was just a matter of time when all this would certainly occur.

Otter
04-25-2011, 08:47 AM
The only thing that I'm surprised is that the author is giving us 4 more years on top.

ROYC75
04-25-2011, 09:09 AM
When Nixon took us off the Gold Standard in the early 70's it was just a matter of time when all this would certainly occur.

This!

Cave Johnson
04-25-2011, 09:14 AM
What we have done is traded jobs for profit.

Glad that's worked out well for our oligarchical overlords. The middle class, not so much.

And W(ho)TF calls the yuan the renminbi....

Stewie
04-25-2011, 09:21 AM
And W(ho)TF calls the yuan the renminbi....

Renminbi is kind of like saying "currency" or "money system." Saying yuan is like saying "dollar" in the US. They are basically interchangeable. My Chinese colleague had to straighten me out. He did have a caveat that the meanings of those terms don't translate perfectly.

Cave Johnson
04-25-2011, 09:28 AM
Renminbi is kind of like saying "currency." Saying Yuan is like saying "dollar" in the US. They are basically interchangeable. My Chinese colleague had to straighten me out. He did have a caveat that the meanings of those terms don't translate perfectly.

Interesting. I'm still going to call it the yuan.

http://en.wikipedia.org/wiki/Chinese_yuan

The distinction between yuan and Renminbi (RMB) is analogous to that between the pound and sterling; the pound (yuan) is the unit of account while sterling (renminbi) is the actual currency.

BucEyedPea
04-25-2011, 09:50 AM
Glad that's worked out well for our oligarchical overlords. The middle class, not so much.

And W(ho)TF calls the yuan the renminbi....

I've read economist or finacialists write renminbi.

BucEyedPea
04-25-2011, 09:54 AM
The age of America is over as we get converted to state-capitalism the way China is state-capitalism or what is known as third-way-socialism. Welcome to the NWO. Well this and constant warfare.

Chiefshrink
04-25-2011, 11:12 AM
The only thing that I'm surprised is that the author is giving us 4 more years on top.

Ditto!!:thumb:

Chiefshrink
04-25-2011, 11:13 AM
The age of America is over as we get converted to state-capitalism the way China is state-capitalism or what is known as third-way-socialism. Welcome to the NWO. Well this and constant warfare.

:thumb:

mikey23545
04-25-2011, 11:26 AM
Victor Cha, senior adviser on Asian affairs at Washington’s Center for Strategic and International Studies, told me China’s neighbors in Asia are already waking up to the dangers. “The region is overwhelmingly looking to the U.S. in a way that it hasn’t done in the past,” he said. “They see the U.S. as a counterweight to China. They also see American hegemony over the last half-century as fairly benign. In China they see the rise of an economic power that is not benevolent, that can be predatory. They don’t see it as a benign hegemony.”


Thanks to the relentless powerful drone of liberal propaganda over the last several decades, this fact is largely unappreciated throughout most of the world, and even in our own country.

The coming Chinese hegemony may very well demonstrate to the world how benign the economic domination of the world by the U.S. actually was...

BucEyedPea
04-25-2011, 11:44 AM
Victor Cha, senior adviser on Asian affairs at Washington’s Center for Strategic and International Studies, told me China’s neighbors in Asia are already waking up to the dangers. “The region is overwhelmingly looking to the U.S. in a way that it hasn’t done in the past,” he said. “They see the U.S. as a counterweight to China. They also see American hegemony over the last half-century as fairly benign. In China they see the rise of an economic power that is not benevolent, that can be predatory. They don’t see it as a benign hegemony.”


Thanks to the relentless powerful drone of liberal propaganda over the last several decades, this fact is largely unappreciated throughout most of the world, and even in our own country.

The coming Chinese hegemony may very well demonstrate to the world how benign the economic domination of the world by the U.S. actually was...

You should be more objective, by blaming the mercantilists in the Republican party that helped make it possible with their free-trade agreements. Wake the heck up. This is not just a left versus right thing.

Jaric
04-25-2011, 01:14 PM
You should be more objective, by blaming the mercantilists in the Republican party that helped make it possible with their free-trade agreements. Wake the heck up. This is not just a left versus right thing.

I think you confused the point he was making. That or I've confused yours. We shall see.

He wasn't blaming the left for screwing up the economy. He was blaming the left for making people think America is responsible for all evil in the world (and yes, that was hyperbole on my part there) And that relatively speaking (compared to China) we were actually pretty not evil.

BucEyedPea
04-25-2011, 03:03 PM
I think you confused the point he was making. That or I've confused yours. We shall see.

He wasn't blaming the left for screwing up the economy. He was blaming the left for making people think America is responsible for all evil in the world (and yes, that was hyperbole on my part there) And that relatively speaking (compared to China) we were actually pretty not evil.

I was adding to it including his earlier posts because it evades the real cause of this problem. I totally got we're the lesser of two evils point too.

Jaric
04-25-2011, 03:19 PM
I was adding to it including his earlier posts because it evades the real cause of this problem. I totally got we're the lesser of two evils point too.

:thumb: Gotcha

KC native
04-25-2011, 06:00 PM
Perhaps this is a naive question, but I'll ask it anyway. China has about a billion MORE people than the United States. Is it really a disaster for the United States if China grows its economy?

If the purchasing power of the American people falls in absolute terms, then anyone would agree that it's a horrible thing. But if America's purchasing power falls in relative terms because China has expanded its economy, I'm not so sure that it's a bad thing. It might not be desirable for our interests, but if the standard of living for 1.3 Billion people is raised, I'm pretty sure they will think it's a pretty good thing.

I don't claim to be an expert on this, so feel free to point it out if I'm missing something here.

No, it isn't a disaster. It's inevitable considering the population differences.

Bewbies
04-25-2011, 06:10 PM
We can revisit this in a few years when we don't have a President who's determined to bring American down a few rungs.

KC native
04-25-2011, 06:21 PM
Oh, and pete, this isn't really a bombshell. This has been discussed quite heavily for at least 3-4 years.

BucEyedPea
04-25-2011, 06:47 PM
We can revisit this in a few years when we don't have a President who's determined to bring American down a few rungs.

Did you hear what Peter Schiff said tonight on CNN where the anchor was dumbfounded by his statement as it goes against all the conventional wisdom? He said it's true because China has more capitalism than we do currently since we have a huge centrally planned economy along with not just due to spending and deficits bringing it down.

CrazyPhuD
04-25-2011, 07:02 PM
Possibly true, but this also assumes that the fraud of china growth doesn't fall apart. If it does it could bring down their economy worse than the japanese real estate crisis.

<iframe title="YouTube video player" width="640" height="390" src="http://www.youtube.com/embed/pbDeS_mXMnM" frameborder="0" allowfullscreen></iframe>

KILLER_CLOWN
04-25-2011, 07:04 PM
The IMF will destroy us long before that.

petegz28
04-25-2011, 07:07 PM
Oh, and pete, this isn't really a bombshell. This has been discussed quite heavily for at least 3-4 years.

Oh and Native...I didn't make up the title....:drool:

BucEyedPea
04-25-2011, 07:15 PM
Possibly true, but this also assumes that the fraud of china growth doesn't fall apart. If it does it could bring down their economy worse than the japanese real estate crisis.

<iframe title="YouTube video player" width="640" height="390" src="http://www.youtube.com/embed/pbDeS_mXMnM" frameborder="0" allowfullscreen></iframe>

The theory is as our dollar drops in value things will be too expensive for us to buy from China particularly once China catches on about what's happening. Then their currency would rise and they'd be the consumers there in China instead.

RJ
04-25-2011, 07:36 PM
Is China a capitalist, communist or socialist nation?

KILLER_CLOWN
04-25-2011, 07:40 PM
Is China a capitalist, communist or socialist nation?

Yes.

Jaric
04-26-2011, 07:07 AM
Is China a capitalist, communist or socialist nation?

It depends on what point I'm trying to make.

ChiefaRoo
04-26-2011, 04:24 PM
You should be more objective, by blaming the mercantilists in the Republican party that helped make it possible with their free-trade agreements. Wake the heck up. This is not just a left versus right thing.

Pea. I think your using the term mercantilist wrong. Free Trade is not mercantilism. Exports growth with protection on imports is. Seems your using the word backwards.

Bewbies
04-26-2011, 07:37 PM
We're not as bad off as people report, and China is nowhere near as well off as people report.

You can't build empty cities for millions of people that are so expensive hardly anyone in your nation can afford it. See: Dubai.

ChiefaRoo
04-26-2011, 08:36 PM
That video is really amazing.

Bewbies
04-26-2011, 08:42 PM
That video is really amazing.

Yeah, it's actually sad. You can't do what they're doing without crushing a lot of people....

BucEyedPea
04-26-2011, 08:44 PM
Pea. I think your using the term mercantilist wrong. Free Trade is not mercantilism. Exports growth with protection on imports is. Seems your using the word backwards.

I guess I could put "neo" before it because it takes on different form of the original. But we do not have free-trade agreements. That's a fallacy the right never questions. Peter Schiff pointed that out on CNN to the anchor. He called our economy a centrally planned one and the lady did a double take thinking it was the opposite of most people think. What most people think is that the label is true. It's not.

I don't care what you really wanna call it but it's not free-trade, it's an arrangement by certain govt connected corporations using govt to capture markets for their interests with socialism for losses, bribery or arm twisting by govt to allow their trade. Sorry it is what it is but it ain't free-trade or a laissez-faire market economy. It stems from Hamilton.

BucEyedPea
04-26-2011, 08:45 PM
Is China a capitalist, communist or socialist nation?

It's a mix with state-capitalism.

ChiefaRoo
04-26-2011, 09:35 PM
Yeah, it's actually sad. You can't do what they're doing without crushing a lot of people....

I would assume their Govt. controlled banks own all the paper on these empty cities. I wonder if the developers got paid. Really they're building cities as a "Make work" program for the average worker. People will never live in these cities.

Makes one wonder how they set the prices to begin with.