IMF Bombshell: Age of America Nears End

Monday, April 25, 2011

I guess deep down in our psyches, we knew this day would come. Just not this soon.

For the first time, the International Monetary Fund announced 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, 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 weren’t prepared for this and they weren’t even aware it was so 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.

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 is rising.

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. China is snapping up farmland and foodstuff supplies, from South America to China and elsewhere — including the U.S.

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.

No wonder so many have been buying gold.

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.

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16 Responses to IMF Bombshell: Age of America Nears End

  1. feminazi says:

    All the more reason why people like Timothy Geithner are the wrong people to steer our monetary policies during a time of upheaval and crisis. Wall Street or should I say, the people who run Wall Street, have no business serving in cabinet positions. They are partly to blame for getting us into this mess and lack clarity. We need a non-partisan academic who understands the world and not just lower Manhattan.

  2. Joe in Colorado says:

    Thanks for reporting on this. The media and most bloggers are lost in a swirl of silliness about Trump, the Royal wedding and Lindsey Lohan. Utterly useless commentary. I always new China would overtake the USA but like this piece points out, I figured we had another decade, maybe two until it happened. The implications for the USA is grave. I for one don’t think China will buy American debt much longer. We’re a bad investment for them. And with the dollar continuing to slide, is $7 dollar gas nearer than we think too?

  3. TOM339 says:

    We’ve replaced jobs with profit.

    The once mighty American manufacturing base, the powerhouse that lifted us out of the Great Depression, is almost nonexistent today. Yet our society is awash in cheap goods made in China and elsewhere. But don’t listen to me — just look around your own home. I did and only my sofa was made in the USA.

    Corporate America has chased the “bottomline” to just about every third world and developing nation on earth and yet prices rise and American jobs keep disappearing. The process began so long ago that most people can’t recall a time when our TV said made in the USA.

    I think the rise of the Chinese dragon could be delayed if we had a president and a congress who comprehended the importance of manufacturing but this isn’t the case with the current leadership in the White House and on Capitol Hill.

    Trust me, the day is coming when China owns all the agricultural land in the Midwest and they control the prices and access of the food we eat and that day will arrive in the next decade.

  4. Brigadoon says:

    The albatross dragging the US economy down into the toilet is unfettered military spending. The Pentagon can’t live within its budget. How many times each year do they crawl to the Congress requesting another $90 billion? If this moron president we elected in 2008 is serious about getting our financial house in order, slash military spending and end the wars in Iraq, Afghanistan and Libya.

  5. TOM339,

    I agree. Look at Boeing. Many components are not built by Boeing but are outsourced to other manufacturers around the world including China. This may be either for cost savings in production, specialist development or as an incentive for that country to buy other Boeing products. Here is a list of some of the outsourced components for the 737 series 900:

    – Fuselage, engine nacelles and pylons – Spirit AeroSystems (formerly Boeing), Wichita.
    – Slats and flaps – Spirit AeroSystems (formerly Boeing), Tulsa.
    – Doors – Vought, Stuart, FL.
    – Spoilers – Goodrich, Charlotte, NC.
    – Vertical fin – Xi’an Aircraft Industry, China.
    – Horizontal stabiliser – Korea Aerospace Industries.
    – Ailerons – Asian Composites Manufacturing, Malaysia.
    – Rudder – Bombardier, Belfast.
    – Tail section (aluminium extrusions for) – Alcoa / Shanghai Aircraft Manufacturing, China.
    – Main landing gear doors – Aerospace Industrial Development Corp, Taiwan.
    – Inboard Flap – Mitsubishi, Japan.
    – Elevator – Fuji, Japan.
    – Winglets – Kawasaki, Japan.
    – Fwd entry door & Overwing exits – Chengdu Aircraft, China.
    – Wing-to-body fairing panels and tail cone – BHA Aero Composite Parts Co. Ltd, China.

    More than 50% of the Boeing 737-900 is made in Asia. Why is Boeing employing workers in Asia, getting a tax break to do so, and helping China, specifically to bury the American economy?

    As I have asked for years, when did America, first, become a radical idea?


  6. Seabec says:

    You forgot to mention, Boeing gets a tax break for outsourcing jobs to China and the rest of the world. We, the American tax payer, are paying for our own destruction.

  7. Debbie Banuelos says:

    We need to get Obama out of office. He’s far to stubborn and ineffectual to deal with problems such as these. In strict geopolitical time, we have about an hour left on the clock to turn things around.

    Otherwise, start brushing up on your Mandarin.

  8. Woodcliffe says:

    I agree with Debbie. Obama is Carter 2.0 when our survival hangs in the balance.

    Of course, China’s dominance over the U.S. could be stopped by implementing a TARIFF on everything Chinese. This would at least give us a chance to breathe life into our long neglected manufacturing base.

  9. Marcus Ybanez says:

    Maybe the silver lining in this is the Central Bank of China won’t lend the U.S. money to fund all of these moronic wars? I mean come on. Obama gets a Nobel Peace prize for what? Predator Drones?

  10. Matteo says:

    I think Woodcliffe is on the money. Look what I found in The Daily Beast.

    Obama’s Awful ’70s Show Echoes Jimmy Carter

    Gas prices are heading toward $5, single-family home sales are at a low—and with President Obama ignoring his base like Jimmy Carter did, he could end up being another one-term president, Eric Alterman writes.

    • Multiple news organizations are reporting that gas prices are rising so fast, we could easily face a summer of $5-a-gallon prices at the pump.

    • The New York Times reports that, “New single-family home sales are now lower than at any point since the data was first collected in 1963, when the nation had 120 million fewer residents.” Instead of nice, new houses, buyers are looking for something small, cheap and (thanks to rising gas prices) close to work. Foreclosure homes are all the rage, even as we apparently emerge from a recession. “That often means buying a home out of foreclosure from a bank,” the Times said.

    • Politico reports that organized labor is losing patience with the president. As unemployment remains near 9 percent, the president is pushing business-friendly trade agreements in Latin America with little concern for their impact on labor at home, or even abroad. In Colombia, for instance, it’s not safe to be a labor leader. Rep. Mike Michaud (D-Maine), who chairs the House Trade Working Group, says he is “appalled that the administration is putting forward this action plan as the answer to Colombia’s rampant human rights and labor rights violations.” Politico also notes that “a larger group of liberal Democrats—including close Pelosi allies George Miller (D-Calif.), Rosa DeLauro (D-Conn.) and Jan Schakowsky (D-Ill.)—last month demanded assurances from Obama that ‘Colombia’s long track record of repression, violence and murder of labor unionists has truly changed,’” but Obama nevertheless “subsequently hosted Colombian president Juan Manuel Santos at a cordial White House meeting to promote the trade agreement.”

    • The Times also reports that “Americans are more pessimistic about the nation’s economic outlook and overall direction than they have been at any time since President Obama’s first two months in office,” with well fewer than 50 percent expressing confidence in the president’s leadership or the direction in which he’s taking the country.

    • Meanwhile, Obama, like Carter, is reacting to these warning signs not by rallying his own side, or focusing on those aspects of his party’s platforms that remain popular, but by seeking to split the difference between dispirited Democrats and increasingly radicalized Republicans. According to recent polls, only 29 percent of Americans questioned believe that this rush to slash the deficit will help create jobs. Seventy-two percent favor Obama’s promise to restore pre-Bush tax rates for those enjoying incomes of $250,000 a year, but of course he caved on that in 2010, and it’s hard to see why he won’t do so again in another election year. When asked specifically about Medicare, those questioned say they are willing to pay higher taxes rather than see its services cut, and a plurality of 45 percent prefer military cuts instead.

  11. goldtracker says:

    It’s amazing how this topic has been avoided in the MSM. They’ll pick it up soon enough though, I’m sure, because it’s the kind of news that will affect markets. The dollar certainly isn’t in a position to easily sluff it off.

  12. Rachel says:

    Good morning everyone! I just wanted to add this. I stopped for gas this morning before work and my local Shell station is $4.23 a gallon. Chevron is $4.25 a gallon. I drove a few mile to Costco and found gas for $4.15 a gallon. I can’t afford anymore of Obama’s “hope and change.” I’m going broke. Seriously, this can’t go on much longer.

  13. Massagatto says:

    Goldtracker is quite right.

    I have read at least 8 major newspapers online this morning and the IMF prediction has gone ignored in all but one newspaper: the UK Daily Mail. A charming, if local London daily.

    As for the cable news outlets, well, CNN is in Obama’s pocket so deeply I’m sure the editorial staff can smell his junk. MSNBC is a sill cesspool of royal inbred, wedding coverage bordering on the pathological. Fox, to the credit, did cover the IMF story but briefly.

    With gold marching upright toward $2,000 an ounce, I will predict gas prices in the US will reach $7.00 a gallon and Obama, well, our “first black president” will be sent home to Chicago with his horse-faced, Nubian wife in the passenger seat.

    Obama is so dreadful I almost miss Jimmy Carter. Just almost.

  14. Pingback: “IMF: Age of America ends in 2016, China takes over” and related posts | Global News

  15. Randy Arroyo says:

    The practice of globalism and NAFTA is so destructive to countries. People say they help developing nations but smaller, poorer nations report more pollution and destruction of ecosystems following globalism and NAFTA. Now, we are seeing how gamma nations like the US is harmed too.

  16. Red guard says:

    There is so much wrong with this article it is laughable. I wonder if the author has actually been to China. If the PPP statistic is even correct, then it is merely a statistical anomaly that has no value in real terms. People that could be deemed middle class still live in work-unit shared dorms with rationed hot water, eat in mess halls and sock away their moderate salary to either put towards their parents’ welfare or as a safety net for themselves. “Age of America Nears End” just because of PPP? What about the fact that America’s military capabilities are probably 20 times that of China, America’s reach in the world and its soft power trumps China’s 100 times over.
    The implications of China’s rise are many, but throwing up a meaningless stat like this as some sort of indication that America’s time is up is irresponsible and alarmist.

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