If you’re keeping a running tally of the institutions and nations that are warning America to stop spending or else, I’m up to three, but maybe I missed a few. Last week it was Standard & Poor’s lowering the boom on America’s debt. Well it’s only Monday and we already have two more warnings: one from our banker, China, and one from the International Monetary Fund. The end of America?
Last week, when Standard and Poor’s warned there was a 33% chance that the United States would lose its AAA rating, the left wrote it off as an unreliable rant from unbelievable investment bankers. Obviously a plot from the right to make the young president look bad. But I wonder how they’re going to shake this one off? Today the international monetary fund issued a report that predicted the end of America’s economic dominance by 2016. From WSJ MarketWatch.
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 aren’t prepared for this. They aren’t even aware it’s that 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.
But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates …
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.
Maybe that’s why China came out swinging today, beating its ever larger economic chest and sending a message to the United States that your debt is just no good for us anymore.
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.
That’s a $2 trillion dump of US debt. Ed Morrissey at hot air notes they won’t do it overnight but make no mistake if the news agency says they will do it, they will do it.
China won’t dump the dollar any time soon. They need the value of the dollar to remain strong to protect the reserves they already own. The collapse of their high-speed rail bubblemeans they can’t afford to go to economic war with the US at the moment, assuming that they were inclined to do so at any time. It does mean, however, that Treasury will have to work much harder to sell its bonds, which will force yields up and increase the debt service, and may mean that we won’t find many buyers at all. If China stops buying, the next best customer is Japan, which won’t be able to afford more bonds for years; in fact, they may have to sell theirs to fund their recovery efforts from the quakes and tsunamis of 2011.
Who else will come to our rescue? The Saudis? Don’t bet on it.
One plus one plus one equals uh-oh! don’t say you haven’t been warned you my little mobsters. And don’t let Congress tell you they didn’t know the problem was this big. We need to hold Congress and the White House accountable and insist they get their fiscal house in order and that means cut the government down to size.