- Jul 23, 2008
- 890
- 0
- 0
IMF bombshell: Age of America nears end
Commentary: Chinas economy will surpass the U.S. in 2016
By Brett Arends, MarketWatch
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.
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. Brett Arends looks at the implications for the U.S. dollar and the Treasury market.
And its a lot closer than you may think.
According to the latest IMF official forecasts, Chinas 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 worlds hegemonic power.
According to the IMF forecast, which was quietly posted on the Funds website just two weeks ago, whoever is elected U.S. president next year Obama? Mitt Romney? Donald Trump? will be the last to preside over the worlds largest economy.
Most people arent prepared for this. They arent even aware its 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.
Chinas economy will be the worlds largest within five years or so.
But theyre miscounting. Theyre only comparing the gross domestic products of the two countries using current exchange rates.
Thats a largely meaningless comparison in real terms. Exchange rates change quickly. And Chinas exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.
The comparison that really matters
In addition to comparing the two countries based on exchange rates, the IMF analysis also looked 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 Americas share of the world output down to 17.7%, the lowest in modern times. Chinas would reach 18%, and rising.
Just 10 years ago, the U.S. economy was three times the size of Chinas.
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 Americas 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 worlds 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.
------------------------------------------------------------------------------------
Outsourcing coming home to roost? So what does this mean for the layman? Should I convert my cash from dollars to something else? Will we see substantial, sudden changes or is it just fear-mongering?
Repost
http://forums.anandtech.com/showthread.php?t=2160597&highlight=age+america
-Schadenfroh (AT Mod)
Commentary: Chinas economy will surpass the U.S. in 2016
By Brett Arends, MarketWatch
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.
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. Brett Arends looks at the implications for the U.S. dollar and the Treasury market.
And its a lot closer than you may think.
According to the latest IMF official forecasts, Chinas 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 worlds hegemonic power.
According to the IMF forecast, which was quietly posted on the Funds website just two weeks ago, whoever is elected U.S. president next year Obama? Mitt Romney? Donald Trump? will be the last to preside over the worlds largest economy.
Most people arent prepared for this. They arent even aware its 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 theyre miscounting. Theyre only comparing the gross domestic products of the two countries using current exchange rates.
Thats a largely meaningless comparison in real terms. Exchange rates change quickly. And Chinas exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.
The comparison that really matters
In addition to comparing the two countries based on exchange rates, the IMF analysis also looked 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 Americas share of the world output down to 17.7%, the lowest in modern times. Chinas would reach 18%, and rising.
Just 10 years ago, the U.S. economy was three times the size of Chinas.
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 Americas 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 worlds 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.
------------------------------------------------------------------------------------
Outsourcing coming home to roost? So what does this mean for the layman? Should I convert my cash from dollars to something else? Will we see substantial, sudden changes or is it just fear-mongering?
Repost
http://forums.anandtech.com/showthread.php?t=2160597&highlight=age+america
-Schadenfroh (AT Mod)
D hopeful thinking, but I already admitted that)... but again, I also expect it to happen relatively soon. 
Facebook
Twitter