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IMF bombshell: Age of America nears End- as early as 2016
14 years ago
General
"We are made to persist."
Got the original article from 
prawst and you can see his thoughts here : http://www.furaffinity.net/journal/2288124/
I've reposted the article in its entirety below, or you can go read it here:
http://www.marketwatch.com/Story/st.....B-00212804637C
Commentary: China’s economy will surpass the U.S. in 2016
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.
IMF sees China topping U.S. in 2016
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 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.
But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.
. . .
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.
. . .
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.
Any thoughts?
prawst and you can see his thoughts here : http://www.furaffinity.net/journal/2288124/I've reposted the article in its entirety below, or you can go read it here:
http://www.marketwatch.com/Story/st.....B-00212804637C
Commentary: China’s economy will surpass the U.S. in 2016
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.
IMF sees China topping U.S. in 2016
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 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.
But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.
. . .
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.
. . .
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.
Any thoughts?
"That's how we find out who we are."
Do You Like Metal?
Art I owe people:
wildmark- Ongoing project
mitsozuka- Reference Sheet
foxystallion- Ongoing project
Do You Like Metal?
Art I owe people:
wildmark- Ongoing project
mitsozuka- Reference Sheet
foxystallion- Ongoing project
All I meant by saying that earth is a closed system is that with the exception of sunlight, the occasional large rock and several tons of dust that hit us on a daily basis we're not really creating anything -new-, just shifting the weight around. In true material terms, earth is a zero sum system. In order to have anything it has to be taken from the earth itself or from someone else who got to it first; but that's less a matter of economics and more a matter of environmental studies I suppose. We just haven't tapped anything out, that I know of, yet.
I just want to say that it's not an argument I'm looking for. I posted the article and asked what people thought in order to foster discussion and provoke thought, and I'd say it's done that in at least one instance now.
It is what you can do with that rock that counts, and that is dependent on knowledge and investment.
For example, indium ore was once a mineralogy curiosity. Not any more - converted to high purity indium oxide, it provides the transparent electrically conductive coating that is used on every LCD.
Shale deposits containing gas and oil were useless and worthless - until directional drilling and hydrofracturing were invented and developed - and now America has at least a century of domestic oil and at least two centuries of domestic natural gas. Shell Oil has developed a process for converting kerogen (AKA oil shale) into oil while it is still underground. At about $90 per barrel production costs, America has about 2.5 TRILLION barrels more oil.
And the biggest one of all so far - turning sand into computer chips...
Earth is a zero sum system only in terms of mass, not what can be done with that mass. Even that is only temporary; as the MacKay School Of Mines tee shirt says:
http://localgeographic.com/pictures/M-03.gif
You're right, of course; It's only zero sum in terms of mass, I've been turning this over in my head for a while. It's not necessarily practical to think of things that way in absolute terms, but for the long haul, it seems prudent to harvest and utilize resources as efficiently as possible.
Honestly, I think it would be better if we thought of that remaining potential oil supply as a 'nicotine patch' to make the infrastructure changes necessary to do without it or produce a sustainable substitute for things that really are better off using something like it. For independent vehicles it's really, really hard to beat the energy density of good old petroleum based fuels. I agree that what can be done with that mass changes the economical factors in play, but I don't think we're (on the whole) really being all that economical about handling that mass, do you? I love the idea of expanding out into space, and I think doing so is inevitable if we don't kill ourselves first. I just don't know how I feel about going out there because we've run out of it here. Ultimately, though, my ideals, and what is probable, are two veeeeeery far removed things....
Even with the huge amount of oil available from known resources, I would be amazed if it were used for anything other than petrochemicals a century from now. Burning it will go the way of buffalo chip heated tepees and wood powered trains. Incidentally, there is more forest cover in the US now than a century ago - and Col. Drake saved the whales...
What can we do about it? Not much, really. As you pointed out, the US has abandoned its values in exchange for profits, and we've lost a great deal of our economic power as a result. Try to fill even a small shopping cart without purchasing Chinese goods. Due to our twisted idea of free trade, that there can be a fair economic exchange between the civilized and the savage, the savage are gaining the upper hand.
Does that even make any sense? I'm kind of sleep deprived at the moment.
I've been talking about it with a friend, and the only way the U.S. could really have continued to be on top would have been to adopt a protectionist policy, keeping stuff here and favoring its own economy over the global economy. That's exactly what China is doing, and as a result it's climbing the ladder. The trouble is its economy is superheated as a result, it can only keep that up for so long before something gives internally.
Personally, I'm sort of a radical idealist x3 What I think global economic policy should look like is probably not going to happen.... oh, I dunno, ever. What I said about earth being a closed system or a zero sum game is absolutely true in the long run; when we eventually run out of something here we're going to have to go off-world to look for it, assuming we can. Now, when i say run out, I mean of course that the resource has been allocated in such a way that it's no longer usable; it's something different now, it hasn't actually gone anyplace unless we've actually ejected it into space. Given that, a global economic policy seeking to generate a resource based equilibrium would make more sense, would it not? It's immediate gratification or long term stability, you can't really have both =/