April 29, 2011
What distinguished experts long knew (timetables aside), the IMF just recognized, saying China's economy will surpass America's in 2016. If so, it will signal an end to the "Age of America," and no wonder after decades of heedless profligacy. More on that below.
The IMF's 2011 World Economic Outlook shows China overtaking America in five years based on purchasing power parity (PPP) - a criterion for an appropriate exchange rate between currencies as measured by the cost of a representative basket of goods in one country v. another.
IMF's 2016 PPP GDP estimate:
-- China - $18,975.7 trillion
-- America - $18,807.5 trillion
In current dollar terms, America retains its lead, but it's slipping noticeably.
IMF's 2016 dollar GDP estimate:
-- America - $18,807.5 trillion
-- China - $11,220.2 trillion
Economic forecasts, of course, vary. Moreover, long-range ones combine extrapolated trends with reasoned judgments. However, as economist Alec Craincross (1911 - 1998) once observed:
"A trend is a trend is a trend. But the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?"
Not China's for over three decades, "growing 17-fold in real (inflation-adjusted) terms since 1980," according to economist Mark Weisbrot. As a result, it's been the world's fastest growth engine, a pace it's maintained during the current global economic crisis in contrast to America in decline.
Economist Henry HK Liu mostly attributes China's sucess to its not freely convertible currency, its closed financial market, and its quasi public-private central bank used for economic growth, not bailouts and speculation. In his January 12, 2010 article titled, "China and a New World Economic Order," he discussed policy initiatives to keep influencing it positively, including:
-- avoiding a deregulated market economy;
-- prioritizing full employment and rising wages;
-- breaking free from dollar hegemony;
-- conducting trade based on mutual development; and
-- not using "green-tech investment" to stimulate growth.
On August 17, 2009, financial writer Ellen Brown's article headlined, "China's Miracle Economy: Have the Chinese Become the World's Greatest Capitalists?" saying:
China "seems to have decoupled from the rest of the world, preserving an 8% growth rate (now higher) while the rest of the world sinks into the worst recession since the 1930s."
Unlike America to this day, in fact, China keeps credit flowing freely for economic growth, though too much of a good thing itself creates problems; notably bubbles that sooner or later burst.
However, Brown explains that China's banks "serve public enterprise and trade" because it controls their operations, unlike America's privatized system serving bankers, not people.
Notably, in fact, Beijing prevented "irresponsible bank speculation and profiteering by keeping a leash on (its) banking sector," as well as focusing on economic growth and job creation, ignored by Washington policy makers.
It's worked for over three decades so why not three more or much longer provided greed doesn't replace good policy, what's headed America down for decades.
As a result, China consumes record volumes of oil, natural gas, coal, copper, iron ore, and other commodities. It's also the world's largest industrial country and producer of gold, rare earth metals, steel, coal, copper, agricultural products, pork, seafood, textiles, electronic products, and more with no end of its growth in sight.
Impressively, China passed Japan in Q II 2010 to become the world's second largest economy. Heading for number one, perhaps Washington policy makers recall what's believed Napoleon once advised to: "Let China sleep, for when the dragon awakens, she will shake the world." IMF analysts apparently took note.
America's Decline and Fall
In his book titled, "The World in Crisis," historian Gabriel Kolko believes that America's decline "began after the Korean War, was continued in relation to Cuba, and was greatly accelerated in Vietnam - but (GW Bush did) much to exacerbate it further." Obama not only continues Bush policies, he exceeded him with greater recklessness, masquerading as a people's president while waging war on working Americans.
No wonder Kolko thinks US influence is declining everywhere. The world no longer depends on its economic might. Nations like China, India, Brazil and others grow much faster, and after the Soviet Union collapsed, "the absence of identifiable foes has been a disaster, leaving the US aimless. (So) it picks and chooses enemies" globally in Afghanistan, Iraq, Pakistan, Libya, elsewhere in the Middle East and North Africa, and perhaps later China and Russia while other nations increasingly tire of imperial America and its reckless economics counterproductive to their own.
As a result, America's century of dominance is ending. Immanuel Wallerstein agrees, saying it's been fading since the 1970s, accelerating post-9/11. In fact, "the economic, political and military factors that contributed to US hegemony are the same (ones) inexorably produc(ing) the coming US decline."
Chalmers Johnson called it the same dynamic that doomed past empires - "isolation, overstretch, the uniting of local and global forces opposed to imperialism, and in the end bankruptcy," combined with growing authoritarianism and loss of personal freedom.
Calling America's condition dire, he said it's "too late for mere scattered reforms of our government or bloated military to make much difference." History is clear. We can choose democracy and survive or continue as present and perish. Clearly the wrong political, social, military, and economic choices were made, heading US hegemony for the ash heap of history.
Nixon's Council of Economic Advisers chairman, Herb Stein, notably explained, saying, "Things that can't go on forever, won't." Earlier, Johnson said:
The "combination of huge standing armies, almost continuous wars, military Keynesianism, and ruinous military expenses have destroyed our republican structure in favor of an imperial presidency. We are on the cusp of losing our democracy for the sake of keeping our empire."
Moreover, once a nation starts down that path and won't change, its end time is certain. Only its timing is unknown, perhaps coming faster than expected.
America's Dollar Hegemony in Decline
Global plans to replace the dollar metaphorically highlight America's decline, the topic economist Michael Hudson addressed in his June 13, 2009 article titled, "De-Dollarization: Dismantling America's Financial-Military Empire."
For decades, America stayed economically dominant because other nations agreed to a Washington controlled WTO/IMF/World Bank/Bank for International Settlements (the Central Bank of Central Banks in Basel) system, using the dollar as the world's reserve currency.
Other countries, however, now balk. A June 2009 Yekaterinburg, Russia meeting with top officials of the six-nation Shanghai Cooperation Organization (led by China and Russia) took the first step to end dollar supremacy, perhaps replacing it eventually with a single global currency or a basket of major ones.
Today, America remains unchallenged militarily, its economic supremacy, however, weakening as it staggers under growing debt, while nations like China, Brazil, India, Russia and others are rising.
In July, 2009, Russian President Medvedev advocated a supranational currency. In September, the UN Conference on Trade and Development proposed an artificial one to replace the dollar. Other alliances, including nine Latin American countries, support a regional currency. China wants its yuan protected, and Russia plans to begin trading in the ruble and local currencies.
Hudson calls the present system a "sinister dynamic (because) the US payment deficit pumps dollars into foreign economies (that have) little option except to buy US (debt) which the Treasury spends on financing an enormous, hostile (global) military build-up," and its ready-to-unleash-anytime war machine.
Moreover, foreign US Treasury buyers may not only be financing their own endangerment, they're also buying a depreciating asset, what analyst Matthias Chang calls dollar denominated "toilet paper" from a "toilet paper printing press....issu(ing) irredeemable fiat money."
Why else would world demand for gold and silver be strong. They reflect real value, not paper backed solely by the eroding faith and credit of issuing countries. Buyers clearly lack it in America with good reason. As a result, expect further dollar erosion, decline and perhaps crisis if current selling ahead surges.
No wonder other countries seek a new monetary system to avoid funding America's deficit and military. BRIC nations (China, Russia, India and Brazil) took the lead. Others are now following, and the weaker the dollar gets, inevitably they'll be more.
Economist Paul Craig Roberts also believes the dollar's global reserve currency hegemony won't last. Sooner or later wholesale dumping will happen when foreign central banks unload them. As a result, import prices will rise enough to make Wal-Mart shoppers "think they have mistakenly gone into Neiman Marcus."
Domestic prices will also soar "as a growing money supply chases the supply of goods and services still made" domestically. Disruptions will follow. The dollar won't survive. When it goes America's trade deficit can't be financed. Imports will fall sharply. Inflation will rise, and "(p)anic will be the order of the day" because a corporate - government cabal is "strung out on the ecstasy of Empire," and obsessed with destroying the nation's middle class to transfer maximum wealth to America's super-rich already with too much.
A Final Comment
Consider how far America declined and the inevitable consequences. The combination of:
-- military Keynesianism;
-- permanent wars;
-- Washington being corporate occupied territory;
-- banker bailouts;
-- generous handouts to corporate favorites;
-- offshoring the nation's industrial base;
-- neoliberal austerity;
-- class warfare, including against unionism;
-- systemic corruption;
-- increasing repression;
-- sham elections; and
-- democracy in name only, the best money can buy, made America no longer a model for other nations, the engine of world growth, a fit to live in, or able to prevent its inevitable decline, fall, and replacement by China and perhaps other nations one day.
It's a sad testimony to a two centuries old experiment that failed because absolute power corrupted too many with it wanting more.
Stephen Lendman lives in Chicago and can be reached at email@example.com. Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.