HKrandom
HKrandom
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AZDuffman
AZDuffman
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April 25th, 2011 at 4:56:34 PM permalink
Quote: HKrandom

http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25?link=MW_home_latest_news
What do you guys think of that?



Looks like it is based on "parity" and other games. It also assumes China can keep growing at 10%+ per year and nothing else changing. I see a few problems here. First, every last "miricle" economy in Asia has had a crash of one size or another. No reason to think China will not have similar problems. No reason more so as China's economy has problems hidden under the surface in the form of many non-performing loans.

Second, half of China still lives in poverty. Extreme $2 a day poverty. The poor there will not be contained forever. Either they will revolt or the government will have to re-distribute wealth from the wealthier coast, causing unrest there.

Finally, China is export-dependent on low-cost, low-value products. Japan developed "brands" like Toyota and Sony. Name a Chinese-owned "brand." As wages in China rise the world will find more poor nations willing to work cheap.

At 4xs the population of the USA, China will probably take the GDP lead one day. But that day is closer to 2060. By then China may be more than one country.
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pacomartin
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April 25th, 2011 at 6:05:08 PM permalink
It is more rapid than the prediction a few years ago, but as AZ stated it's based on parity, and it doesn't take into account the 4.5 times difference in population. China just passed Japan in 2010, and it has 10-11 times the population.

That said, the US needs to broaden support for the dollar. The natural thing to do would be to bring in Canada and Australia and give them seats on the Fed. Their dollars are trading about the same as the US dollar. If we could unify them at 1:1 parity, then it would help defuse some of the tension about using one country's currency as the basis for the world economic system. We don't have to replace all the banknotes but they should be legal currency in each other's country. The US should phase out the $1 and the $50 and replace them with coins and the Australian $50 which is widely used there.
thecesspit
thecesspit
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April 25th, 2011 at 8:04:59 PM permalink
The US dollar is used in this part of Canada (all be it at a rather poor exchange rate).

I think you're assuming that Canada would give up some level of sovereignty to lose its C$.... considering some of the mess in the EU is due to a single currency between countries with very different economic climates and cycles, I'm not sure it'd go down well. The Australians, even less so. The Canadian to US exchange rate has moved wildly in the last few years to $1.04 US gets you $1 Canadian now (up from somewhere around 80c mark in my memory).
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pacomartin
pacomartin
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April 25th, 2011 at 11:14:05 PM permalink
Quote: thecesspit

The US dollar is used in this part of Canada (all be it at a rather poor exchange rate).

I think you're assuming that Canada would give up some level of sovereignty to lose its C$.... considering some of the mess in the EU is due to a single currency between countries with very different economic climates and cycles, I'm not sure it'd go down well. The Australians, even less so. The Canadian to US exchange rate has moved wildly in the last few years to $1.04 US gets you $1 Canadian now (up from somewhere around 80c mark in my memory).



Well the USA would have to cede some control of the fed. Possibly by creating a extra seats. It's not a question of losing control, but one of where you cede it to. The drumbeat for creating an exchange currency that is not the US dollar is getting louder and louder, and the Chinese will want an increasing share of that power. That will affect Canada and Australia just as much as the USA.
SanchoPanza
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April 26th, 2011 at 4:45:09 AM permalink
Quote: pacomartin

The US needs to broaden support for the dollar.


That is not too likely at all, in view of current government policies in Washington and Beijing. China is clearly trying to shed $2 trillion in rapidly depreciating American paper:

BEIJING, April 23 (Xinhua) -- China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.

China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.

Meanwhile, Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.
pacomartin
pacomartin
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April 26th, 2011 at 6:17:26 AM permalink
Quote: SanchoPanza

That is not too likely at all, in view of current government policies in Washington and Beijing. China is clearly trying to shed $2 trillion in rapidly depreciating American paper:



I am not arguing that the dollar is in trouble, and that Canada and Australia wouldn't have a heated debate about giving up their free floating currency. It is not the inclination of any countries citizens to share control of their currency. If the Euro had been put to a vote, I don't think it would have been approved anywhere.

But the clear purpose of a new reserve currency is to pull economic power away from the nations that are European or the descendants of Europeans. The USA, UK, Canada and Australia have a largely shared cultural heritage, essentially free travel between the countries, and considerable cross investment in each other's countries. Right now they have 25% of the world's GDP.

The question is always not what is happening now, but how will the world be different in 10-20 years in the future.
Country PPP method 2016 2011 2016 2011
China 18.002% 14.316% 18.002% 14.316%
United States 17.770% 19.382% 35.772% 33.698%
India 6.632% 5.617% 42.404% 39.315%
Japan 4.953% 5.665% 47.357% 44.980%
Germany 3.356% 3.875% 50.713% 48.855%
Russia 2.941% 3.001% 53.654% 51.856%
Brazil 2.880% 2.943% 56.534% 54.799%
United Kingdom 2.605% 2.882% 59.139% 57.681%
France 2.494% 2.826% 61.633% 60.507%
Mexico 2.062% 2.087% 63.695% 62.594%
Italy 1.979% 2.317% 65.674% 64.911%
Korea 1.923% 1.973% 67.597% 66.884%
Canada 1.582% 1.769% 69.179% 68.653%
Indonesia 1.574% 1.414% 70.753% 70.067%
Spain 1.573% 1.782% 72.326% 71.849%
Turkey 1.242% 1.284% 73.568% 73.133%
Taiwan Province of China 1.114% 1.096% 74.682% 74.229%
Australia 1.113% 1.183% 75.795% 75.412%
Islamic Republic of Iran 1.030% 1.109% 76.825% 76.521%
Poland 0.946% 0.964% 77.771% 77.485%
Saudi Arabia 0.838% 0.839% 78.609% 78.324%
Thailand 0.793% 0.788% 79.402% 79.112%
Argentina 0.790% 0.852% 80.192% 79.964%
Netherlands 0.780% 0.892% 80.972% 80.856%
Egypt 0.735% 0.681% 81.707% 81.537%
South Africa 0.694% 0.703% 82.401% 82.240%
Pakistan 0.640% 0.619% 83.041% 82.859%
Colombia 0.581% 0.582% 83.622% 83.441%
Malaysia 0.576% 0.563% 84.198% 84.004%
Nigeria 0.570% 0.521% 84.768% 84.525%
Philippines 0.472% 0.474% 85.240% 84.999%
Belgium 0.453% 0.518% 85.693% 85.517%
Sweden 0.441% 0.468% 86.134% 85.985%
Vietnam 0.434% 0.381% 86.568% 86.366%
Hong Kong SAR 0.431% 0.437% 86.999% 86.803%
Ukraine 0.405% 0.410% 87.404% 87.213%
Peru 0.398% 0.377% 87.802% 87.590%
Bangladesh 0.396% 0.354% 88.198% 87.944%
Singapore 0.387% 0.395% 88.585% 88.339%
Venezuela 0.387% 0.452% 88.972% 88.791%
Austria 0.381% 0.435% 89.353% 89.226%
Switzerland 0.378% 0.429% 89.731% 89.655%
Greece 0.362% 0.407% 90.093% 90.062%


Table stops before the final 10% of the world's GDP as that would add an additional 140 countries.
AZDuffman
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April 26th, 2011 at 4:36:21 PM permalink
Quote: pacomartin

That said, the US needs to broaden support for the dollar. The natural thing to do would be to bring in Canada and Australia and give them seats on the Fed. Their dollars are trading about the same as the US dollar. If we could unify them at 1:1 parity, then it would help defuse some of the tension about using one country's currency as the basis for the world economic system. We don't have to replace all the banknotes but they should be legal currency in each other's country. The US should phase out the $1 and the $50 and replace them with coins and the Australian $50 which is widely used there.



I don't see this Canada and OZ giving up their currencies. Parity is already likely causing export problems. I also do not see the USD going anywhere anytime soon despite statements to the contrary. No "international" currency will do it. The reserve currency must be backed by a country with a large economy and military. The reserve currency must also be a country willing to buy at least as much as they sell, even running a trade deficit often in order to get the currency into the internatioal system. China and others are determined to keep running trade surpluses.
All animals are equal, but some are more equal than others
pacomartin
pacomartin
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April 27th, 2011 at 6:42:57 AM permalink
While I appreciate your comments about high value of currency causing export problems, and the desire not to give up control of your currency, those are standard statements that have always been true since WWII. When the value of your currency drops it is like negotiating a salary cut with millions of people.

Developing Asia (27 countries) is now 25% of the world GDP, that is more than the American Dollar Zone, or the Euroland. I think that country economies will be too vulnerable to raiding if they try to stand on their own.
Quote: The attack of the British pound


Pound currency attack begin in September 1992
Short selling of the pound was led by hedge funds: particularly George Soros.
The British Government’s initial response to the attack occurred on Wednesday, September 16
Government raised interest rates twice from 10% to 12 and then to 15%
Attempt to make U.K. investments more attractive.
During the attack the Bank of England used $4 billion in hard currency in defense of the pound. Bank of England bought $4 billion worth of pounds which were being sold short (it did this by selling U.S. dollars and German marks to speculators).
Estimates: 1/3 of its hard currency was spent.
On Wednesday at 7pm (UK time), the U.K. government announced they would be leaving the ERM the next day and that interest rates would go back to 10%. (referred to as “Black Wednesday”).
Thursday, September 17, the pound returned to an independent float.
By late October, the pound had fallen about 13% against the mark and 25% against the U.S.

pacomartin
pacomartin
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April 27th, 2011 at 10:10:18 PM permalink
Three years ago the IMF analysts released a report where they stopped their prediction out to the year 2013. But if you simply used a linear fit, the economies of China and USA were equal in the year 2017 plus 4 months .

The IMF releases an update to their prediction every 6 months so they have been fine tuning the projection 6 times. In the last three years they have altered there prediction so that the two economies are equal in the year 2016. But the only difference is that they ran the table all the way to the year 2016 so you don't have to project ahead a year or two.

Suddenly it is front page news all around the world like the economy has changed.

Why is this fact so unexpected? I thought we learned how to do a linear projection in tenth grade?


Will China's rise lead to the decline of U.S.?
The International Monetary Fund (IMF) recently made a bold prediction that China will exceed the United States and become the world's largest economy as early as 2016 in terms of purchasing power parity.

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