Task Number One For The Next US President: Tell The Nation The "Age Of America Is Over"

Tyler Durden's picture

After a weekend full of empty (or not) Chinese posturing, Marketwatch's Brent Arends has an interesting tidbit to add to the China vs US debate. "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." The year? 2016. So perhaps having a 5 year head start in selling the bonds of what will soon be even an official former superpower is not such a bad idea. "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." And here's why pretty soon America may be left without presidential candidates: "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." Oh well, it was fun while it lasted.

More from MarketWatch:

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.

That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.

So what happens in a purchasing power parity world? Nothing pretty.

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 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 is rising.

Just 10 years ago, the U.S. economy was three times the size of China’s.

This is sad. Even with the rhetorical narrative paragraph breaks confirming it.

This is more than a statistical story. It is the end of the Age of America. As a bond strategist in Europe told me two weeks ago, “We are witnessing the end of America’s economic hegemony.”

We have lived in a world dominated by the U.S. for so long that there is no longer anyone alive who remembers anything else. America overtook Great Britain as the world’s leading economic power in the 1890s and never looked back

Arends is correct: "one time" stimulus is no longer having an impact in what is a disastrous secular trend.

What the rise of China means for defense, and international affairs, has barely been touched on. The U.S. is now spending gigantic sums — from a beleaguered economy — to try to maintain its place in the sun.

It’s a lesson we could learn more cheaply from the sad story of the British, Spanish and other empires. It doesn’t work. You can’t stay on top if your economy doesn’t.

Equally to the point here is what this means economically, and for investors.

And while nobody on Zero Hedge will need this refresher, this paradigm (yes, we hate the word) shift means bond investors are about to start getting a series of very rude awakenings.  Even assuming the Fed sells an infinite number of 30 Year put options.

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.

And while our new Chinese overlords are not big fans of the rapidly devaluing linen/cotton combination, they sure like their shiny metals. Which is why the Hunt brother high is likely about to be taken out in a matter of days if not hours.

h/t AB

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Dan The Man's picture


God...they can't all move to Canada...

silvertrain's picture

No they cant..But that very topic of location is the most important thing in a man's future imo..That very thing has given me many hours of pondering and data research..And the question is where would be the best location to hang out for a few years, I dont have decades btw..

Harlequin001's picture

So let me get this straight, China, that place holding trillions in yet-to-be-defaulted debt and where real estate just plunged by 27% in one month is going to rule the financial world... Hmmm perhaps someone should ask all those Madoff investors just how wealthy they feel right now...

China will plunge with the rest of them, and worse than many...

bobby02's picture

That, sir, is nothing short of HERESY. Everyone knows that the US will implode tomorrow and the Chinese will rule the Heavens and the Earth.


(It wouldn't be posted on the Internet if it weren't true.)

Harlequin001's picture

I don't know about the ' Chinese will rule the Heavens and the Earth' but it won't make any difference to the US implosion, which is now inevitable...

bobby02's picture

You might want to hedge that bet a little bit. I've heard that story for close to 30 years now. What's that old saw about history and rimes?


'Few Americans appear to be aware of it, he said, but 1985 may mark the "critical turning point when Japan surpasses the United States as the dominant economic power in the world, and America begins a precipitous decline."'



Harlequin001's picture

The world is a very different place to what it was 30 years ago...

Seems to me that if it hadn't been for the monster bank fraud of auction rate securities this whole mess would have gone pear shaped a lot sooner, though the effects wouldn't have been nearly as bad...

It's still the end of the line for the US if you ask me...

bobby02's picture

How does "The world is a very different place to what it was 30 years ago..." differ from "This time is different"?

Such a scenario is certainly possible. The question is whether it is probable. I think not, but that is unknowable. I think China's problems are just as bad as the US's, just less transparent, and  with inferior solutions. Also, the notion that China will decouple from the West, that Chinese domestic demand will save the day, is difficult to swallow.

At any rate, I remember the mass hysteria surrounding Japan, how they already owned Hawaii and the other states were soon to follow. (ZH would have been a big hit in those days.) The arguments were very similar to those advaced now vis-a-vis China: US has huge and unsustainable debt, Japan is net exporter to US, etc.

Harlequin001's picture

The US unlike Japan has no market to export into, so there is no point in manipulating the currency lower to foment exports. This time IS different. This time the 'engine of world growth' just blew up, which means that unlike 30 years ago we now have far too much productivity and no market that can absorb it through cheaper and cheaper credit.

Chinese domestic demand will not save the day because China is full of poor people who just like in the West rely on credit for their wealth at every level of society. There is no one to export to unlike 30 years ago, which means that this time it ends, badly...

A US failure is a matter of mathematics, I don't know how you can describe it as 'unknowable'...

bobby02's picture

I was comparing China now to Japan then, not the US. Also, I was ridiculing the Chinese domestic demand story, not advocating it.

US failure is by no means mathematics. Even in the event of inflation, default, war, pestilence, a Glen Beck presidency, life will go on. Although it may not be deserving, America is better positioned to weather the upcoming storm. The USSR is instructive in this respect. Some people got fucked (older workers and pensioners mostly); others bought professional sports teams.

Harlequin001's picture

Ok Bobby I have no idea what your point is now.

Why compare China now to Japan then when the entire global economy is different?

'America is better positioned to weather the upcoming storm. The USSR is instructive in this respect.' What does this mean?

The US is fucked, completely and utterly fucked. The US relies entirely of western governments to conspire to fix debt markets. Without debt markets you have aircraft carriers you can't afford to put fuel in.The US is therefore no better off than the USSR, which has less debt outstanding by far.

A fractional reserve system of credit banking at 10% reserve means you can lend 9 times your deposits in the form of new loans. When those checks come back from other banks for payment you are insolvent by a multiple of 9, which requires that you either sell those loans to another buyer or failing that to the Fed for liquidity. It requires a bailout by multiples of 9 each time the checks come back for payment and its failure is exponential. That's what TARP, QE1,2 and 3 through 25 is. The failure of the US is a matter of mathematics, pure and simple otherwise you allow these lenders to go bust, which the US categorically will not do ergo you go bust in a big way. There is no way the US can avoid it...

At least we can agree that China is not able to step in and fill the void.

bobby02's picture

Plus ça change, plus c'est la même chose


China 2011 is Japan 1985 - poised to take over the world at the expense of the flailing, uncompetitive, overindebted US.

Don't forget that the US and/or US banks could simply default. I don't think any US creditors would invade as a consequence. As for the fleet, we can afford to fuel them with domestic oil. It is the underwater owner of a McMansion in exurbia that would be fucked, not the military.

Also, not to be callous, but faced with the choice of killing the American way of life or detonating a few megatons over some godless communists, what do you think our leaders would choose? What would you do? Kill some Chinese or resign yourself to serfdom?

Harlequin001's picture

The British empire should have taught you that you need money to fight a war, or at least access to a lender with money of value.

Do you not think the Chinese have nukes too?

If the US defaults what happens to interest rates? More to the point, how does the US finance its government if it can't sell debt at 2-3%? Like any other banana republic it will need to print to make up the shortfall which means that the money supply will explode by multiples (of in this example 40) driving commodities ever higher REQUIRING the US to print ever more money. And all that just to stand still with todays budgets.

Without debt markets the US cannot finance a war, and even if you could you will not win because you will be nuked yourself. The US could not win a war against the UK or France, never mind China or Russia which have many more missiles. You are fucked, utterly...


bobby02's picture

You might want to double check the number of nukes China has, as well as the state of their military in general, aside from the size of cannon fodder. Domestic resource base might also be interesting, especially in the face of a naval blockade stopping shipments from Australia and South America.

We agreed that Chinese domestic demand in the short term is likely a myth. Thus, absent US/EU demand, what exactly will fuel the Chinese economy? Who will have difficulty financing their government?

d_senti's picture

Boy, you just jump right off one horse and onto another don't you? :) You said that this was the same old "end of US dominance" argument from the 80s. He proved you wrong, and now you're changing the subject.

Your comment about the US simply nuking China to stay dominant also didn't fly, because they would nuke us back. It wouldn't be worth it in the least. So he proved you wrong and you're changing the subject.

He never said that China wasn't screwed. They are if we are, though which of us is in a better position to weather the storm is debatable.

Harlequin001's picture

How are you going to pay to feed the chaps on these ships whilst you blockade?

Are you expecting domestic oil producers to provide this oil for free without regard for their own food, heating or otherwise own well being?

You seem to be having difficulty with the concept that being destroyed once is no better or worse than being destroyed twice, or fifty times, so it doesn't matter how many nukes China has. They have enough to take you out, and one nuke can take out an entire battle group so your fleet is all but useless.

I think you need to go and think this one through, because heresy apart, ZH is absolutely correct in my view. This is one shower of shite from which no one will emerge smelling of roses...

thefedisscam's picture

Only Fools comparing China to Japan.

Way TOO MANY differences!

i-dog's picture

You won't solve America's problems by focussing on China's [assumed] problems. Focus on the job at hand!

malek's picture

So you really believe that 27% number?

Harlequin001's picture

Can you think of a good reason why I might not?

malek's picture

Check reality light is blinking?

malek's picture

Which means the 27% is completely useless, if not outright fabricated.

The news came out 10 days ago. If it were true, China's financial system would have imploded by now.
Or the Chinese bureaucrats managed to cover up in a few days what took the Bernank and co. half a year (September 2008 to March 2009).
Or all numbers were based on lies from the start, so the 27% would be too.

But imagine for a second the number is true. You expect prices will fall another 27% or so next month? How did the prices get so high to begin with, for example what was the monthly change for the 6 previous month? How many people actually bought or sold to those prices??

Harlequin001's picture

Ok Malek, you may be right, so what in your view then is the figure and why?

'How did the prices get so high to begin with?' You'll have to forgive me for quoting from my website but here goes...

'Assuming that we are 100 in number and we each have a house valued at $1 then the entire housing market would be valued at $100 in total on a mark to market basis, but if I were to now borrow $20 and start buying houses for $2 each, then other homeowners will anticipate that the resale value of their own homes had risen to $2 because that would be the current market rate. That's what "mark to market" is, right? Financial markets would perceive a fair and realisable value on a “mark to market” basis to be 100 houses at $2 each, a $200 market. The problem is that the total investment in our housing market remains at only $120. So where did the other $80 come from?

The fact is that property speculators just perceived 80 non existent dollars from somewhere which don't appear on the balance sheet of any bank, anywhere, yet. The problem is that an independent valuation from an industry professional declaring a market value of $2 is normally sufficient for the borrower to be considered a prime borrower with collateral and we can now go and obtain a credit rating of all different flavours and borrow against it from a bank.

The problems arise when speculators try to spend their 80 dollars on something of value because as soon as I stop buying houses the collateral disappears and the homeowners who took loans against the magically increased equity in their homes are left with the debt and just like the banks, no collateral.'

The reality light is now fully on.

so what is the real value of Chinese real estate?

and do you think they have any real wealth regradless of what that figure actually is...

malek's picture

Your example is too static. If, after the mark to market price has risen to $2, more then a few of the 100 house owners tried to sell thier house for the new price, it would start dropping again. Unless there is a vast number of aspiring home owners (or "bigger fools"?) it is impossible for all 100 house owners to sell at $2. (It was actually already impossible at $1 value.)

So mark-to-market is useless, if you are shifting (selling/buying) such a large amount that you start moving the market [price] yourself.
In the end only realized gains are real gains.

And that is also true for all US banks and such, but suspending mark-to-market in March 2009 after the bubble conveniently ignores the fact that CEOs, quants, and fund managers (and somewhat less stock owners, if they sold at the right time) of those banks profited immensely from the mark-to-market "gains" during the bubble rise. So all of them took real profits on mostly imagined gains. And those paid out monies (and then some) are now lacking in the bank's balance sheets. Now who is going to pay to rebalance capital ratios.

I don't know the real value of Chinese real estate. As with all things it is what willing and able buyers would be ready to pay for it, which can be anything and change any second.
But I do know that their $2T treasury holdings are worth less than 50 cents on the dollar if they try to sell them into the market (before the US stage a miraculous recovery and start producing things again, without destroying the dollar first - errhmmm). And the Chinese know that.

But it sounds like quite a stretch to me that Chinese accounting is more strict (=reliable, truthful) than US and therefore they will declare bankruptcy first, after a disastrous Chinese housing bubble bursts. In the final count only the means of production including resources, or access to resources, matter. And in that field the Chinese are quite strong already and, with a population 4 times the US, would naturally overtake us someday if general mismanagement doesn't hamper them.

Banjo's picture

Harlequin001: China realestate if FAR LESS LEVERAGED than in the US. Many Chinese people buy using 100% cash, no leverage.

Overall China is a Nett creditor.

China has labor prices that Europe and the US can't compete with.


China the bad news:

  • There are physical limits to growth. Coal consumption alone will not keep up with current requirements let alone planned.
  • Social unrest 1.3 billion is alot of mouths to feed. Peak Oil is going to SMASH China HARD.

The US the good news:

  • The US has traded real goods for paper. Thanks China.
  • The US has it's own vast reserves of natural resources.
  • The US is working towards making it's workforce competitive since the Regan years working to eliminate unions and keep wages stagnant and moving backwards in real terms.

If I was broke in the US and broke China or India, the US would win hands down. That said the decline of energy available to fuel our global economy is going to be a massive re-adjustment that even I doubt I am fully prepared for. Essentially we are all screwed.

Harlequin001's picture


'Essentially we are all screwed'

whilst we might disagree on the mechanics we do at least agree on the outcome.

Buying gold is the only viable solution for us little folk. And to store it on a tax efficient basis safely overseas...

Dr. Porkchop's picture

Our immigration officials are very sympathetic to refugees of third world countries. 

falak pema's picture

even redneck republikans who hate Canucks and their hockey moms, even more their hockey sons!?

Mongo's picture

Age of men is over, the age of the silver vigilante has begun!

silvertrain's picture

Does anybody know where the Royal Couple will be going on there Honeymoon?

falak pema's picture

Mount Fuji...for 'fuk-u' all night, all day revelry!

thames222's picture

Antarctica, to hang out with penguins...thoughts on the UK becoming more powerful than us in a few years?



firstdivision's picture

How do our soon to be overlords feel about the price of oil?  That popped quite well this morning.

Dan The Man's picture


I heard Lizard Island..haha

Flakmeister's picture

For anyone aspiring to be the next Reagan, I suggest the following Ad campaign..

"Mourning in America"

proLiberty's picture

I would not be so quick to assume that the rise of China is secure.  Twice in its history, the Communist Party has seen fit to trade dozens of millions of Chinese lives for power.  People who are growing in prosperity and the ability to gain intellectual freedom tend to demand a say in how the country is run, and in particular that government corruption be addressed.  This is a giant festering sore in China that could break open at any time and the Party's main weapon will be the same tool it has always used: violent suppression. 

We also have the problem of relatively unrestrained expansion of credit and perverse incentives to build, build, build.  This sets the foundation for a giant economic adjustment, and social unrest.



Chuck Walla's picture

Don't knock it! Violent suppression works. Obama and the kids running this carny are just itching to off some non-Kool-Aid drinkers.

Mercury's picture

Well mission accomplished Barry.

Comparisons to the fates of the Spanish and British empires may be instructive here but I'm more sceptical about the future extent of Chinese superpower.  Maybe now is the perfect confluence of technology and circumstance that makes it all possible but I tend to think that if the Chinese really had the knack for world domination they would have pulled it off by this point in history.

If they succeed I think it will be because they build a real, old-fashioned empire with colonial governors, taxes and massive resource extraction and not an American style, indirect, empire-lite.

Harlequin001's picture

'massive resource extraction' doesn't work. the British were by far the most successful colonialist power because having taken over a country they installed a system that allowed the colonies to generate wealth and buy more British debt thereby allowing the British to build more warships and pay for more troops, and go attack someone else.

Other colonial powers tried the 'massive resource extraction' and soon discovered that there is only so much resource one can loot, and that once you have looted it the value of that resource at home plummets as its supply increases.

The British realised that there is no end to the amount of someone else's resource you can pledge as collateral for a loan to buy troops to go and collect it  whereas the Americans never had any empire they could sell to other than the free-for-all that results today.

LMAO's picture

"According to the IMF forecast, whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump?


If TPTB already have decided that this constitutes the menue of the "presidential soup elect", than we are well and truly fucked even more than we think we are.

Yep, change we can believe in.




myshadow's picture

Acknowledge, this is a DEPRESSION.

zaknick's picture

AmeriKKKa, bitchez!!

Bubbles...bubbles everywhere's picture

No more "Hope and Change"?

Henry Chinaski's picture

What? It took about 2 months for Hope and Change becom Frustration and Anger.

"The Age of America Is Over"  The POTUS is not only okay with that, he has been facilitating it.

I was listening to the coverage of his recent townhall discussion of gas prices.  People were adamant that the POTUS needs to take action.  The sympathetic media told us how important it will be for his reelection that he handles the gas price situation well.  Meanwhile, if you just listen to what he says and observe what he does, it doesn't take an extra eye to see that he doesn't care if gas prices go up. 

Furthermore, he doesn't care if this country goes down.  Meet BHO, the first anti-American President.

Paradigm shift, bitchez.

vxpatel's picture

We need real leadership to get us through this mess...


Palin/Quayle 2012!



LowProfile's picture

Please use /sarc tags in the future.  Ktnxbai.

Kina's picture

Donald Trump?


Don't know what Americans think of him but outside the US we consider him a total fool, anc cannot imagine that anybody including himself would take it seriously.