Courtesy of Karl Denninger, The Market Ticker
For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China.
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.
There is a problem with this forecast: China’s economy is absolutely dependent on exports to the United States and elsewhere.
How the IMF squares their prediction with this numerical fact would be an interesting exercise, and one fraught with risk.
As noted in the Marketwatch article:
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.
That’s correct. And the reason it didn’t turn out well is that the alleged interdependence broke down.
It will break down this time too. It always does, when you build a bridge on an unstable foundation. In China’s case their economic "miracle" is predicated on labor and environmental arbitrage to "fuel" their export engine.
This is an unstable and unsustainable paradigm. The Chinese appear to recognize this risk,. but I have no reason to believe they’re capable of addressing it in any meaningful sense – certainly, they haven’t shown any indication that they’re willing to abandon what they’ve been abusing thus far.
Nations rarely make these adjustments voluntarily – it usually happens when "something breaks." Well, we’re at "something breaks" here in the United States. We hit the wall in 2007 with our debt-based spending binge, and instead of accepting it the Government has tried to protect the banksters, who fueled this monster, by replacing their contracting financial credit with deficit spending.
In fact, the net deficit additions beyond what President Bush was running through the entire 2000 decade, which were themselves an attempt to replace the private leverage from the 1990s, are almost-exactly in the amount that financial leverage has contracted.
Not one dime has gone to help consumers, nor can it – if you stop supporting the banksters they all blow up, and the government knows this. But China cannot continue to put up their "miracle" without this paradigm continuing, and the US Government cannot, on an indefinite basis, run $1,700 billion deficits.
We’re at the point, in the coming months on the inside, and the next couple of years at the outside, where "something breaks" that’s important – and impossible to "patch."
