The International Monetary Fund (IMF) made a significant prediction that the “Age of America” will end and the U.S. Economy will be overtaken by that of China. The IMF says that this is to happen in just five years from now, in 2016. This provides a painful context for all the budget debates that are occurring now in Washington DC. It also raises questions on what the international monetary system will look like in the future. More negative pressure will be placed on the already weak U.S. dollar and giant U.S. Treasury market, which have remained strong because of the U.S. economy’s number one ranking.
The IMF analysis used “purchasing power parities” (PPP). Under the PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile, the U.S. economy will expand from $15.2 trillion to $18.8 trillion. Just 10 years ago, the U.S. economy was three times the size of China’s economy. China’s success is attributable to decades where China has pursued economic policies aimed at national expansion and power.
The U.S. needs to focus on how to expand its economy for future growth. It’s an important lesson that U.S. should learn cheaply from the British, Spanish and other empires. You cannot stay on top if your economy does not.