IMF Bombshell: Age of America Nears End

[dave32]

Looks like old Chocolate Steve may have been on to something....

 

Interesting piece.

Link

 

:

 

"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."

 

--

 

"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 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."

 

 

[Bangkoktraveler]

[color:red]Just 10 years ago, the U.S. economy was three times the size of China's[/color].

 

Interesting!

 

What happened in the last 10 years to make this happen?

[Bangkoktraveler]

We might be concerned about China but India has a really good pace in this 'race'.

[Guest lazyphil]

global mobile execution facilities/organ harvesting (most of our vital organs here/360 members will be useless, so dont worry!!) will be operational pretty soon!

[ozpharlap]

[color:red]Just 10 years ago, the U.S. economy was three times the size of China's[/color].

 

Interesting!

 

What happened in the last 10 years to make this happen?

The influx of cheap hispanic labour, the rise of technology and the great loss of manufacturing jobs in middle America, i.e., the loss of their own identity

[cavanami]

I would say it will be much shorter then 5 years, at max. 2 years! IMO.

[ThaiHome]

Updated With IMF Reaction

The International Monetary Fund has responded to my article.

 

In a statement sent to MarketWatch, the IMF confirmed the report, but challenged my interpretation of the data. Comparing the U.S. and Chinese economies using "purchase-power-parity," it argued, "is not the most appropriate measureÂ… because PPP price levels are influenced by nontraded services, which are more relevant domestically than globally."

 

The IMF added that it prefers to compare economies using market exchange rates, and that under this comparison the U.S. "is currently 130% bigger than China, and will still be 70% larger by 2016."

 

My take?

 

The IMF is entitled to make its case. But its argument raises more questions than it answers.

 

First, no one measure is perfect. Everybody knows that.

 

But that's also true of the GDP figures themselves. Hurricane Katrina, for example, added to the U.S. GDP, because it stimulated a lot of economic activity — like providing emergency relief, and rebuilding homes. Is there anyone who seriously thinks Katrina was a net positive for the United States? All statistics need caveats.

 

Second, comparing economies using simple exchange rates, as the IMF suggests, raises huge problems.

 

Currency markets fluctuate. They represent international money flows, not real output.

 

The U.S. dollar has fallen nearly 10% against the euro so far this year. Does anyone suggest that the real size of the U.S. economy has shrunk by 10% in comparison with Europe over that period? The idea is absurd.

 

China actively suppresses the renminbi on the currency markets through massive dollar purchases. As a result the renminbi is deeply undervalued on the foreign-exchange markets. Just comparing the economies on their exchange rates misses that altogether.

 

Purchasing power parity is not a perfect measure. None exists. But it measures the output of economies in terms of real goods and services, not just paper money. That's why it's widely used to compare economies. The IMF publishes PPP data. So does the OECD. Many economists rely on them.

 

[gobbledonk]

India is a tough one for me - never been and its not on my list of places to see. I just hope this economic miracle means the Indians working as tailors in SE Asia can go 'home'

[bust]

This is news?

 

[kamui]

[color:red]Just 10 years ago, the U.S. economy was three times the size of China's[/color].

 

Interesting!

 

What happened in the last 10 years to make this happen?

 

GWB, two wars