Business Insider: China Overtook The U.S.S.A. to become The World's Largest Economy The IMF measures, both GDP in market exchange terms, and in terms of purchasing power. On the purchasing power basis, China is overtaking the US right about now and becoming the world’s biggest economy. We’ve just gone past that cross-over on the chart below, according to the IMF. By the end of 2014, China will make up 16.48% of the world’s purchasing-power adjusted GDP (or $US17.632 trillion), and the US will make up just 16.28% (or $US17.416 trillion). Take a really good look at the down-trend of the USSA. Yup, 100s of millions and millions and millions of regulations 'for the good of society', the replacement of our money with State fiat currency, labor-tax, illegal state-spying, never-ending-war, 1 in 2 Amooricans receiving a State handout, 1 in 5 functionally illiterate, the largest prison population of non-violent 'criminals', hyper-regulated markets jam-packed with rent-seekers enjoying the fruits of Police State regulatory-capture. Again, take a really good look at the down-trend of the USSA and enjoy the New Economy Benny Boy secured for the ultra-rich by using the State against the people. Now all that's left is whipping up another war and watching as the functionally illiterate cannon fodder die 'for the good of the Nation' while waving their Made-In-China "American" flags. Please Register or Log in to view the hidden image!
It's been coming for some time. Of course, China has about four times the US population, so we still have quite an advantage in terms of per-capita wealth. Still, as Chinese total GDP rises above the United States, they will be able to match our defense spending with a smaller percentage of their own wealth. It's actually worse than that, since a disproportionate amount of American (and European) defense spending is consumed by pay and benefits for service members, and by a giant system of industrial subsidies for strategic industries. I'm willing to bet that the Chinese get the average ship, plane (and soldier) for far less than the same firepower costs the US or France. It's interesting to speculate on what kind of limits there might be on Chinese growth. If China has four times the US population, and if the US already represents 16% of the world's purchasing power, if the average Chinese was as wealthy as the average American is now, that would be something like 64% of present-day world economic activity. Presumably China would be consuming world resources commensurate with that. Is it realistic to expect that to ever happen? This line of thinking suggests that there's apt to be a collision in coming decades, as China's resource demands start to cut into what's available for the US and the EU. The world economy starts to look like a zero-sum game. And we need to remember that India has already topped a billion people and it's growing as well. Three times the US population times 16% equals 48%. In other words, if both China and India enjoyed the present US standard of living, those two countries alone would host more economic activity (and presumably things like pollution and resource demand) than there currently is in the entire planet. On the other hand, if the ambitions of something lke 2.3 billion people were somehow capped at less than the US and European standard, there are going to be 2.3 billion very angry people out there (with nukes). So it seems likely that the American and European standard of living might very well be doomed to decline pretty dramatically, at least in material terms, in the coming decades.
Graph of Census Bureau data here: http://www.advisorperspectives.com/dshort/charts/census/household-incomes-mean-real.gif would not up load up to display, but shows that the mean, inflation-adjusted, household income of lower 60% of Americans has not increased since 1967, this despite most household now having about twice as many jobs as back in 1967. (More wives work for pay & not uncommon for husband to hold 2nd part time job for more than 40 hour work week). All those economic gains have gone to the top 40% and more than half of those gains to the top 5%. This is a "tiny-growth" disaster for an economy that is 2/3 Joe American's buying. US's GDP and total income did increase during this period as an ever greater fraction of the domestic production was sold externally. The real wealthy of the populations of many nations, especially the BRICS, was increasing and they were buying more. That is changed now - China's growth is slowing as it is in the other BRICS, and in Europe*, long the US's main market. Corporations have little or no need to expand production facilities, so with historically large accumulated funds they are buying each other's or their own stocks. The Fed's printing press (thin air, if you prefer) money is driving up stock prices too, but doing little to put people to work. - Historically low labor participation rates and still falling as is BLS main unemployment numbers as discouraged people stop looking for work or as "baby boomers" retire. It of little surprise to me that the past week saw the greatest weekly fall of the S&P 500 in more than two years (since May 2012); or that the DOW is now lower than at the start of 2014. Ebola is adding to the general "fear level" in the stock markets. If the coming week is more of the same - then my prediction of run-on-dollar by Halloween, made more than seven years ago, may come true. * Germany, the "economic engine" of Europe, seems to be going back into recession. Russian no longer supplying cheap natural gas is part of the reason.
Michael’s use of Purchasing Power Parity is more than a little deceptive. Unfortunately for Michael, the real world uses real currency. And using real currency and real numbers, not hypothetical numbers, China’s GDP is about half that of the US. China has a long way to go if it wants to catch up with The United States. That said China faces a number of challenges going forward, that is one reason global stock markets have been in a bit of a tizzy these last few days. China is facing a running liquidity crisis which could become catastrophic at any time. So things are not as Michael is painting them for China. But that should come as no surprise. “Will China be the source of the next global financial disaster? The evidence increasingly offers reason for concern, though the nature of any calamity could be very different from what the world endured in 2008. At a time when consumers and governments in the U.S. and Europe have been trying -- with limited success -- to pare down or at least stabilize their debt burdens, China has been doing the opposite. Over the past five years, it has pumped more than $13 trillion of credit into its economy, in an effort to keep its growth rate up amid a weak global recovery. The Chinese credit boom has rapidly turned the country into one of the developing world's most indebted, according to a new report from London's Centre for Economic Policy Research. As of 2013, total private and government debt, excluding that of financial institutions, stood at 217 percent of gross domestic product, up from only 147 percent in 2008.” Bloomberg http://www.bloombergview.com/articles/2014-10-09/is-china-s-bubble-the-next-financial-crisis Further, China will need to transform itself from an export based economy to a consumer driven economy. And that will not be easy. China has been a good copier. It has become the world leader in low tech manufacturing. But it going to take much more than that. To compete with the US China will need to undergo a signficant transformation from a copier into an innovator. It will need risk takers and out of the box thinkers and creators. And that is fundamentally at odds with its government. There are 3 global economic concerns at the moment and the US isn’t among them. Europe, China and to a lesser extent Ebola are the 3 major threats to economic growth. There are several limits…one being the liquidity crisis which looms larger with each passing day. Personally, I think China is a house of cards. It also suffers from a corrupt dictatorial government and as such is inherently unstable. Well, I don’t see it. There are already territorial conflicts, mostly over barren rocks in the middle of the ocean – oil rights. And China is currently the largest importer of Arab oil. But it isn’t a zero sum game. Developed countries are using less and less carbon fuels while simultaneously producing more of them. That is a big “if”. India certainly has potential. But India has many issues with corruption and infrastructure. If they want to be an economic super star they need to fix those issues.
Yes you buy things at nominal prices, but nominal values are easily changed, often when inflation is really bad by factor of 10 or even 100 (made by ignoring one or two zeros printed on the paper currency. Before "Plan Real" gave Brazil stable currency that "lopping off zeros" was done several times.) Every one wanting to compare currencies uses PPP, even your own link's Bloomberg source does. (Although for comparing dimensionless ratios, like debt / GDP one can use any cost index, even the price of milk. I.e. express the debt in gallons of milk and the GDP also in gallons of milk if you like.) Please Register or Log in to view the hidden image! Chart is from your link. Note US, UK, EU land, and even tiny Hungry are in worse shape debt to GDP wise than China. Also if that ratio were further stated on a per capita basis, China would be at or near the end of the list (perhaps not even on the list?). Here also from Bloomberg is more important data on the world's rapidly changing economic health: That last bold is exactly the point I made in my prior post (No 3). Times have changed: Now not only is Joe American too lowly paid (in Purchasing power as that is what determines how many goods and services he can buy) but also foreign buyers are in economic slow down or even recession, so the demand for US production is less than US production capacity, and falling wrt that capacity - no rational reason for corporations to expand or hire more. They are as I stated before, using their accumulated cash to buy up stock (their own or that of other corporations of even just buy / take over/ another corporation outright.) Some one noted recently that Apple does not need to develop any on-line TV. - Apple could just buy NBC (and CBS too if the SEC's "restraint of trade" concerns would let them.) Another way to use part of Apple's cash hoard is to let them "buy Argentina" - pay off ALL its entire debt, but that would really be a waste of funds - at least wait until Argentina declares it is bankrupt. A nation does not have real prosperity if its savings are used to buy up stock - what it has is a stock bubble. - Why I transferred 1/4 million dollar out of dollar assets (just before the past week's big sell off, and posted the fact) into Sao Paulo's water company, which currently is depressed due to sever drought. The reservoir water level so low now (less than 5% of capacity) that it will not gravity flow out - must be pumped and that adds costs, which stock buyers with less than a couple of years time horizon don't like. The reservoir will fill soon to at least the gravity flow level, I think, as we are soon entering the "rainy season." I have held some SBS for more than decade (a good dividend payer and my largest holding, even before buying more) and now own more than double what I had. I plan to never sell any - die with it so my heirs get it with much higher cost basis than I have. Cutting the IRS out of a large capital gains tax almost makes me look forward to dying, but being 100 when I do so has its attractions too! So I'm trying for that - my heirs can wait. For your enlightenment: Use of nominal currency values, as you suggest, is how to make for distortions and misrepresentations. As an example of error with market exchange rate conversions used to compare different countries GDP etc. On 26 October 2014 Brazil will have the second, and final run-off election. When new newspaper poll is released, the exchange rate can swing 1%. I brought green dollars to Brazil from last visit to US* and now follow these polls. I sell some when current very socialist president, Dilma, goes up in the polls. She has really hurt Brazil during last four years** so well off people want to buy dollars when that happens, and I sell to them. You can still get nearly 1% MONTHLY, nominal gain (Inflations is less than 7% ANNUAL RATE) just with 100% safe application in a bank. Currently, the dollar is the least ugly whore in the whore house of currencies; so is in demand. That gives it higher value / exchange rates - That too can change, any time China wishes, then you will see why comparisons via exchange rates is misrepresentation. All China needs to do, when ready to destroy the dollar demand, is to issue gold backed bonds paying slightly higher rates than the US economy can afford. As by far the world's largest producer of gold, selling none, and also the world's largest buyer of gold (not even counting the gold not officially coming thru Hong Kong) their gold hoard is rapidly growing - they could sink the demand for dollar tomorrow if they wanted too. *** * I always do - $10,000 per traveler does not require any paper work and I get best conversion rate by doing that at the local "cambio" when rates have a favorable to me swing. Sometimes I do even better by selling to someone going to the US. (We cut out the cambio's profits.) ** FDI has gone to essentially zero, etc. due to her anti-business administration - She does not care if the pie is growing smaller -only wants the poor to get their "fair share." Brazil needs for her to lose - and my SBS will rise, even without rains, if she does. *** China wants to do three things first: (1) Grow domestic consumption fraction of their GDP - Doing that with salaries rising annually in purchasing power by double digits. (2) Lower the fraction of their exports going to the US. Doing that by selling more to Southern Hemisphere nations ever year - Those sale growing several times faster than other sales as wages in China are now too high for Chinese to make the low value added products (like small fans, etc.) they build into the high value added products China now produces - I. e. those suppliers now earn Yuan and unlike US don't need credit to buy. (3) Reduce or at least don't increase, despite huge dollar trade surpluses, the fraction of the Chinese reserves held in dollar assets. Often it "reduce" as China buys up energy, food producers, and raw materials in "paid up front with dollars," the full price" of long term (up to 30 years) delivery contract for their future needs. For example, copper from the Congo, pork by buying world's largest vertically integrated producer. Smithfield Hams, and many, barrels of in ground oil. (Canadian and Venezuelan oil sands plus a few years ago from PetroBrass, with 10 billion dollars, delivery of 200,000 Brls/ day on average for 20 years.)
China has run up a large environmental debt that should be included. It's not going to be cheap to restore and maintain China's natural resources of water and air and fertile soil and so forth. One doubts they will be that wastefully corrupt and fantasy dominated in that particular way - organized as a centralized command economy, which they are, they only need actual defense, which is much cheaper than the US military/industrial complex - and their major corruptions lie elsewhere., The US changed the name of its War Department to "Department of Defense" years ago, but did not change the nature of the Department. The Chinese actually have a defense department.
if your trying to pretend the chinese aren't aggressive your sorely mistaken the idea that china isn't a militarily aggressive country is a naive one. just look at taiwan and japan not to mention their designing weapons specificly with the intention of going up against the US. which for all our aggressive posturing have never threatened china militarily.
Except it isn't true. The US has a 16+ trillion dollar economy and China has an 8 trillion dollar economy - damn minor details. Please Register or Log in to view the hidden image! Further China faces many problems. It is trying to outrun a tiger. Below is an article summarizing some of China's major economic problems. Its economy is growing at just over 7% and is stimulating its economy to keep it from falling below 7%. It faces a growing liquidity crisis. It needs a fast growing economy in order to avoid the grim reaper. At some point, China will have to face the piper. http://europesworld.org/2014/06/15/...at-lie-ahead-for-chinas-economy/#.VFQ0rcJ0zmI
And if you did, you should have sellers remorse. The selloff was a good time to buy. US stocks are not over priced. With a median P/E of 16.8 it is difficult to argue with a straight face that there is a stock market bubble.
Please Register or Log in to view the hidden image! Please Register or Log in to view the hidden image! * I think RMB will not become part of the basis of the Special Drawing Rights in late 2015's review, but certainly will in 2020's review as the "engine" of the world economy. I continue to think there is a reason** why China is growing its gold hoard rapidly - 1100 tonnes inported (not counting unofficial channels, including some authorized bank buying) and at least 400 tonnes of production in 2014 - world's leading producer, by ~ 50% margin for 4 or 5 years now. ** To issue gold backed bonds to central banks, that pay higher interest than US or EU bonds. Making them a more desirable asset to hold in the country's reserves than fiat paper. Please Register or Log in to view the hidden image! As central banks diversify, the dollar part of their reserves has fallen ~10% since creation of the Euro. Composition of all central bank reserves: Please Register or Log in to view the hidden image! Part of the 2011 "bulge" (in the orange/gold strip) is probably gold's role, when neared its peak value. If present gold price trends continue, as in first graph, that strip will grow fatter again. It shrank in first four years of graph as back then central banks were massive sellers of gold, not net buyers as in the last 4 or 5 years.
US will drown in debt and its system will crash. China is and will be the leading world economy and its partners will prosper.
There be plenty of unproductive Americans with income generating assets to be plundered Aaarrrrrrr...., that be 'taxed' .... for the 'good of Dar Roads'...... More taxes. Less civil liberty, less personal privacy and less prosperity. This is the road forward for the Chattel living on Tax Farm USSA. There's no turning around now. Onward and Downward. The nice thing about China, at least for Chinese at this point in time, is that they're freer to conduct trade with one another - at the level most Chinese engage in. It's simply a freer society for the people living there. The unfortunate thing about China is their poor history of private property rights (primarily thanks to the socialists of the last century) and thus, it's not so easy to sue for damages from polluters. This will change with time as Chinese continue to accumulate personal wealth. I'm not sure how things will turn out for Chinese. I personally think Japan is the place for reasons that have just as much to do with the Japanese culture as they do with how various economists attempt to measure it. I was in Japan for a couple months this year and thought things were better than I've seen in a long time. Sure, there is a lot of elderly. But, this is something Japan is dealing with in a manner that's really working out well for them. Lots of nice homes going up. Cities were looking as clean as they always are and, if anything, some beautification projects really turning some older areas around. Plus, the technology is always marching forward in Japan. I'm still astounded that old tech there, say a decade old, still isn't common in the West. Likewise with the USA. I can tell our culture is gutter-level: aside from the shallowness, there's the basics: 15% of Americans are outright illiterate, 20% government school graduates are functionally illiterate, many parents send their kids to day supervision centres (one of the reasons why none of these kids can read or write and turn out shallow/simple). Government schools pumping out little functionally illiterate labor-cogs into hyper-regulated markets to become greeters or work in 'hospitality'. Our never ending warfare state losing wars year in and year out to the tune of unknown trillions. This is actually worse than waste as much of this is actually destroying our industry. Many companies in the USA, having had the fat government teet to suck off, are producing a lower quality product today, compared with 12 years ago. The never ending welfare state and it's single-mother farms. The ghettos littering the cities. And now the NSA spy state. With the exception of a few areas in the mid-west, the USA has basically been turned into a dump of shallow rent-seeker-wanna-bees. Let's hope some of the States do the right thing and vote to peacefully leave the Union.
