The Waning Age of America

MarketWatch: IMF Bombshell: Age of America Nears End

A sobering read from start to finish.  Informative.  Scary.

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.

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.

In case you’re wondering, the one part that stuck with me:

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.

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Comments

  1. Hal (GT) says:

    It is indeed scary. We’ve sold our jobs in the short term for high profits which our government has devalued through printing of greater quantities of cash. America needs to wake up and make some tough choices for real change.

  2. Gail B. says:

    That does not leave us much time to set things right.

  3. Randy Wills says:

    I too read this article, Jeff, with all due trepidation – not for myself but for the generations to follow. I believe that the die is cast and that there in no way that we can “walk the cat backwards”. The root cause is the creation of unrealistic and unaffordable entitlement programs, and the proping up of a standard of living that we are no longer entitled to by the government’s pursuit of fallacious monetary and fiscal policies as a means of retaining political power.

    As I have spoken to in previous comments/articles, I do take exception to the inference in the article that industry, as a whole, has pursued profits at the expense of employment in the U.S. I still contend that, to a larger extent than most people realize, the market (ie the purchaser) makes that determination. Rather than maximizing profit as the only, or even primary, consideration in the decision to out-source a product or process, it is the desire to stay in a given market that drives a product company to make that decision. The U.S. consumer has no compunction whatever regarding the place of manufacture, and its effect on the U.S. workforce, when price is involved.

    All of the blather by the university economists that we’re just trading low-paying, low-skill-level, jobs for high-paying, high-skill-level jobs is just that – blather. We have gutted the middle class employment structure and now wonder why more citizens are employed by the government at taxpayer expense than almost all other employment venues, including manufacturing, combined.

    What a tragedy we are leaving to our progeny.

    Randy

  4. Sam says:

    It’s over folks.

  5. Gail B. says:

    “While I breathe, I hope!” ~ SC State Motto

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