China Take Down

"The International Monetary Fund has just dropped a bombshell, and nobody noticed.


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.


And it’s a lot closer than you may think.


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.


Put that in your calendar.


It provides a painful context for the budget wrangling taking place in Washington, D.C., right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.


According to the IMF forecast, whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy. . . .


Some years ago I was having lunch with the smartest investor I know, London-based hedge fund manager Crispin Odey. He made the argument that markets are reasonably efficient, most of the time, at setting prices. Where they are most likely to fail, though, is in correctly anticipating and pricing big, revolutionary, “paradigm” shifts — whether that be the rise of disruptive technologies or revolutionary changes in geopolitics. We are living through one now.


The U.S. Treasury market continues to operate on the assumption that it will always remain the global benchmark of money. Business schools still teach students, for example, that the interest rate on the 10 Year Treasury bond is the “risk-free rate” on money. And so it has been for more than a century. But that’s all based on the Age of America.


No wonder so many have been buying gold. If the U.S. dollar ceases to be the world’s sole reserve currency, what will be? The euro would be fine if it acts like the old Deutschemark. If it’s just the Greek drachma in drag ... not so much.


The last time the world’s dominant hegemon lost its ability to run things single-handed was early in the past century. That’s when the U.S. and Germany surpassed Great Britain. It didn’t turn out well."


http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25?pagenumber=1