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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, whoever 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....
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.”....
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 food stuff supplies — from South America to China and elsewhere.
U.S. spending spree won’t work
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.... 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 last time the world’s dominant hegemon lost its ability to run things single-handed was early in the past century. That’s when the U.S. and Germany surpassed Great Britain. It didn’t turn out well.
The recovery from the Great Recession has been so weak and so drawn out that many Americans doubt that the nation can ever regain its vigor. It’s been nearly two years since the economy began to recover in a technical sense, but what do we have to show for it?
High unemployment. Low wages. High gas prices. Falling home prices. An aggressive Federal Reserve. A dysfunctional Congress. A president known for his oratory who still hasn’t found the words that could give us hope again....
Most recessions since World War II have followed the same pattern: After several years of strong growth, inflationary pressures begin to build, prompting the Fed to raise interest rates to choke off inflation. Sometimes the Fed can achieve a so-called soft landing, but sometimes the Fed tightens too hard and the economy falls into a recession, which generally lasts a year or so.
The ensuing recovery is fairly robust, with employment and output snapping back rapidly. It’s not unusual to see gross domestic product rise more than 7% in the year following a recession.
The Great Recession was an entirely different creature. The cause of the downturn was different, the extent of the damage was different, and the pattern of recovery is different. The Great Recession was to normal recessions as a dolphin is to a fish: Any resemblance is purely superficial.
The Great Recession had its roots in a massive global credit bubble centered in residential real estate. Once the bubble burst, the financial sector lay in ruins and households found themselves with an insupportable level of debt. The historical record shows it can take years to restore the banking system to health and for households to deleverage, especially if asset prices continue to decline....
The IMF and the other forecasters got it right. The Great Recession was the longest and deepest since the Great Depression of the 1930s, and the recovery has been the weakest since then.
During the 18-month recession, output plunged 4.1%, more than double the average decline of 1.9% in the 10 other post-war recessions. The declines in consumption and investment were the largest since the Great Depression. The unemployment rate doubled, rising from 5% to 10.1%, by far the largest increase since the war.
If the recession was unusually severe, then the recovery has been unusually tepid. It took six quarters for real gross domestic product to exceed the pre-recession level, longer than after any other post-war recovery. Growth has averaged 2.9% on an annual basis during the recovery, significantly slower than the 5.3% average growth seen after other recessions, but almost exactly what economists were forecasting.
With the economy growing only modestly faster than the population and productivity trends, there won’t be much job growth in the next few years from the private sector. Forecasters surveyed by the Philadelphia Fed every quarter are now predicting that the unemployment rate will average 9% this year, more than 8% next year, and more than 7% in 2013 and even into 2014. The CBO says the economy won’t reach full employment until 2016, and the Fed says it could take five or six more years for the unemployment rate to drop back to normal. [/quote
China needs to guard against volatility in U.S. Treasury prices should investors demand higher returns from U.S. government debt, a researcher at the Chinese central bank said on Monday....
Zhang Jianhua, a head of research at the People's Bank of China, said worries that the heavily indebted U.S. government may not repay its debt could drive Treasury yields higher and cause U.S. debt prices to fluctuate.
Investor concerns that U.S. Treasury yields may spike higher came to the fore last week when Standard & Poor's threatened to cut the United States' prized AAA credit rating unless it reduces its yawning budget deficit.
As the biggest foreign buyer of U.S. Treasurys, China is especially sensitive to fluctuations in U.S. debt prices and has periodically sought assurances that its investments would be protected.
Originally posted by woodwardjnr
reply to post by tim3lord
I may not be the greatest fan of US foreign policy, but I'd rather be in a world where the US is the Super power rather than China. I dont know about you but my chinese aint that great and despite what you may think I enjoy the personal freedoms a western style democracy protects.
Economic policy isn’t just a domestic issue anymore....
But there is one good reason the S&P’s negative outlook attracted so many headlines. It was a reminder that U.S. economic policy was no longer just about debates in Washington or what plays in the Iowa caucuses. U.S. economic policy needs to pass muster with global markets and with foreign lenders, too....
It is not just the debt and deficit that are making economic policy a matter of international concern. As the IMF and World Bank meetings revealed, one of the consequences of globalization has been to give national economic decisions a more powerful international wallop....
Mr. Mantega isn’t the only one who is worried. In a panel discussion at Bretton Woods I moderated a few weeks ago, Andres Velasco, the former finance minister of Chile, warned: “So, if you are Brazil today or if you are many of these countries in the rest of the world, you look out the window and what you see is a tremendous tsunami of wealth coming your way. And this, which once upon a time might have been welcomed, I view and many of the people in these countries view as a terrifying sight indeed. Why? Because this tsunami is going to make your politics very difficult, your life if you are a minister very unpleasant and your macro trade-offs very sharp indeed.”
When we think about the thorny questions in foreign policy, we think first about the rocky intervention in Libya or the agonizing war in Afghanistan. But the really big challenge in managing relations between nations is the problem pointed to by Mr. Velasco, Mr. Mantega and S.&P.: managing a world in which my domestic economic policy solution is your foreign economic tsunami.
In investing, extreme behavior is becoming more mainstream every day.
How else can we interpret the extraordinary moves by the University of Texas’ endowment fund to not only buy nearly $1 billion of gold, equal to about 5 percent of its assets, but to insist on taking physical delivery of the precious metal.
Things really have come to an interesting juncture when the second-largest academic endowment in the U.S., managed and advised by sober, rational people, decides that what they need is insurance against getting, in essence, robbed, via inflation, by fiscal and monetary policy.
Little wonder that gold futures went above $1,500 per ounce for the first time on Wednesday, driven by a laundry list of concerns starting with a falling dollar and not ending with the growing chance of “debt restructuring” (well, default, if you insist) by Greece.
“The role gold plays in our portfolio is as a hedge against currencies. The concern is that we have excess monetary and fiscal stimulus,” Bruce Zimmerman, chief executive officer of The University of Texas Investment Management Company told CNBC television.
Originally posted by lokdog
People have been predicting America's fall since the late 50's. I remember when people were going on about the USA could'nt keep pace with the USSR's military buildup and it was just a matter of time before the USA went under.
30 years later its China who is gonna bury the USA. I say time will tell but China has alot of problems of there own that people fail to mention. If I was a gambling man I would'nt bet agianst lady liberty just yet.