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American dollar is losing to Canadian, Australian and even to Singaporean dollar and losing so fast that its parity changes before the flight originating from Los Angeles lands at Sydney. This rings alarms bells but nobody seems to be listening. Does the losing American dollar signal America’s loss of its economic hegemony? Will China be crowned as economic power much ahead of the estimates? Does it have anything to do with steady rise in the price of gold? The events are unfolding at pretty faster pace. The economic gurus had predicted China to be Number One economic power of the world by 2050. Some more ambitious had set this date somewhere closer to 2030. But the International Monetary Fund has rejected all those estimates and has just dropped a bombshell. 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.
According to Market Watch, the IMF assessment provides a painful context for the budget wrangling taking place in Washington 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, which was quietly posted on the Fund’s website just two weeks ago, whoever is elected U.S. president next year will be the last to preside over the world’s largest economy.
Most people aren’t prepared for this because they were looking at GDP to make comparison between China and the USA using current exchange rates. IMF analysis also looked 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. Just 10 years ago, the U.S. economy was three times the size of China’s.
The report says that this is more than a statistical story. It is the end of the Age of America or its 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.
China’s neighbors in Asia are already waking up to the new reality. The rise of China, and the relative decline of America, is the biggest story of our time. You can see its implications everywhere, from shuttered factories in the Midwest to soaring costs of oil and other commodities. Last fall, when I attended a conference in London about agricultural investment, I was struck by the number of people there who told stories about Chinese interests snapping up farmland and foodstuff supplies — from South America to China and elsewhere.
This is the result of decades during which China has successfully pursued economic policies aimed at national expansion and power, while the U.S. has embraced either free trade or, for want of a better term, economic appeasement.
“There are two systems in collision,” said Ralph Gomory, research professor at NYU’s Stern business school. “They have a state-guided form of capitalism, and we have a much freer former of capitalism.” What we have seen, he said, is “a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That’s very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.”
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.
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 Deutschmark. If it’s just the Greek drachma in drag … not so much.
A rainbow of Ludhiana-made stoles is all set to steal the show at the Royal Wedding this week-end. These stoles are traditional dupattas or chunnaries worn by women of the sub-continent. These stoles are not specific to Muslim women; hence, these will not spark any controversy like the hijab which has been legally banned in countries like France but Indian chunarry has a different story. Media has reported that nearly 4,000 soft wool stoles have been shipped for the eagerly awaited wedding of Prince William and Kate Middleton in London this Friday, courtesy a Ludhiana manufacturer. And the royal couple is also expected to take its pick. According to the reports, Ludhiana’s Centex Exports has shipped the stoles to London-based popular online fashion business store Boden. They will also be gifted to the guests invited for the wedding at London’s Westminster Abbey.
Each stole costs 45 pounds. Made of soft wool, the stoles are in red and blue, brown and scarlet and green and grey color variants. The Union Jack is printed on both sides of the stoles. Moreover, the wool has been knit to form an animal print pattern carrying a small patch with the words, ‘April 29th 2011; William and Kate; with love from Boden’. For Indians, it a singular honor to be asked to create such an important keepsake for a wedding which will be historic. These stoles have been chosen from across the world and also it is a once in a lifetime opportunity. Centex was chosen after a market study by Boden.
‘This is the wedding of fantasy and it becomes the major point for the Britishers to project their royalty. They are the force to reckon with today and when such a huge audience will get the live coverage (which is said to be around 2 billion), every small detail needs to be checked. So the royal family hired the service of third party Boden,’ the chief of the exporting firm told the media. The company went across China and South Korea in search of a supplier as they were looking at very fine quality of wool.
In addition to these stoles, the company has made another 2,600 stoles and scarves for Boden which will be sold online. The royal wedding will be a classic British occasion. The guest list includes dignitaries from across the world like US First Lady Michelle Obama, Australian Prime Minister Julia Gillard and the Beckhams.
Normally, loose economic blocs do not assert their political clout in matters which are handled by UN or the group of five established powers. But it now seems that BRIC which refers to the countries of Brazil, Russia, India and China, (South Africa will join soon) which are all deemed to be at a similar stage of newly advanced economic development, has decided to come out of just economic closet and start talking politics. They see their opportunity to assert themselves in the Libya intervention of the West, which they have dared to criticize. According to a paper published in 2005, Mexico and South Korea were the only other countries comparable to the BRICs, but their economies were excluded initially because they were considered already more developed, as they were already members of the OECD. BRIC countries are developing rapidly and by 2050 their combined economies could eclipse the combined economies of the current richest countries of the world. These four countries, combined, currently account for more than a quarter of the world’s land area, more than 40% of the world’s population, and hold a combined GDP (PPP) of 18.486 trillion dollars. On almost every scale, they would be the largest entity on the global stage. These four countries are among the biggest and fastest growing emerging markets.
BRICs could not organize themselves into an economic bloc, or a formal trading association, as the European Union has done. However, there are some indications that the “four BRIC countries have been seeking to form a ‘political club’ or ‘alliance’”, and thereby converting “their growing economic power into greater geopolitical clout”. These are not a political alliance (such as the European Union) or any formal trading association, like ASEAN. Nevertheless, they have taken steps to increase their political cooperation, mainly as a way of influencing the United States position on major trade accords, or, through the implicit threat of political cooperation, as a way of extracting political concessions from the United States, such as the proposed nuclear cooperation with India.
And they have demonstrated their political ambitions in their abstention failing to support UN Security Council Resolution 1973 which raises serious questions about the future functionality of the multilateral system – a system in which the BRIC countries aspire to have a stronger voice. Effectively, the BRICs sent a message of opposition to allied intervention in countries experiencing fundamental political change. Their vote was an implicit acknowledgement that such collective action often has unintended consequences, and that it can result in one side being given an undue advantage over another. But a less obvious driver for their position is also the notion that one day such a vote could be cast against one of them.
It is premature to conclude, says a report in Foreign Policy Journal that the collective opposition of the BRIC countries to allied intervention in Libya represents a formal coalition between these countries. While China and Russia have used their Security Council veto with frequency, aspiring permanent Security Council members Brazil, India, and South Africa are still finding their footing on the global stage, appear hesitant to blatantly oppose the collective will of the established five power permanent members of the Security Council. What they share is a long-held mistrust of Western-led military action and a more general stance in favor of non-intervention.
One of the major criticisms of the West’s decision to intervene in Libya by these countries has been the perceived hypocrisy of ‘selective intervention’.
One will find it quite interesting that India, together with other three countries of the bloc has found it expedient to criticize West’s intervention in Libya even though it also has a history of armed intervention in erstwhile East Pakistan. The Maldives and Sri Lanka have all experienced intervention by Indian military forces. Likewise, South Africa, the soon to be “S” in the “BRICS” has intervened numerous times in its post-independence history, most prominently in the Angolan civil war in 1975/6 and in the post-Apartheid era, and participated in multilateral intervention in Lesotho in 1998. After vocally supporting the principle of non-intervention, it eventually voted in favor of allied action in Libya.
The escalation of the Libyan conflict has surely prompted some of the BRICS countries to contemplate what is involved in having a seat at the world’s top table. The Libyan case further highlights the limitations of a global order struggling to reconcile principles of national sovereignty with principles of multilateralism. The modern history of the world has shown that there will always be crises that require multilateral action. The question has become when the BRICS will be willing to step up to the plate and place idealism above self-interest – an admittedly lofty ambition for any nation-state. Not that the U.S. and European nations have a pristine record in that regard, but they certainly do have substantial economic interests in Libya. The difference is that they have proven willing to sacrifice that interest to participate in sometimes distasteful and necessary political decisions. When was the last time the BRICS countries did that?
There are credible intelligence reports that Pakistani team visiting India for the World Cup 2011 cricket matches will be the target of terrorists. Nobody has made any specific threat but veiled threats were announced by Shiv Sena against Pakistan squad reaching the final to be held in Mumbai. This organization is a known terrorist group of India targeting Pakistan’s interests and Pakistani team will be exposed to the risk of terrorist attack by these terrorists in case they win Mohali semi-finals. As opposed to these terrorists, the public is excited about the clash and there has not been the slightest inkling of political trouble throughout the tournament. Mob violence generally, which never disappears entirely in India, appears to have taken a holiday during the World Cup, except for the occasional lathi charge by police on unsuspecting fans wanting tickets for various matches involving the home side.
Having credible information on a possible terrorist attack, Indian government has made elaborate security arrangements for the visiting team. It was about two years ago that some terrorists, having a clear agenda of moving World Cup venue from Pakistan attacked the Sri Lankan team bus taking the players to the third day of a Test match in Lahore. Seven policemen were killed, four cricketers were injured. The objective was achieved as no international cricket has been played in Pakistan since and the World Cup matches that they were supposed to be hosting were removed. Cricket was suddenly under the eye of the madmen. The nervousness surrounding Mohali match is perhaps natural: what could be a more obvious target for extremists?
Pakistani players have put up a brave face and have rejected Shiv Sena threats. Pakistani coach said last month they were not bothered by these threats. If nothing else, these threats are enough to put the players under pressure. According to a report which appeared in The Independent, the players themselves are deeply aware of the significance of the occasion, not least because the political frisson had made encounters rare once more. There have been only two in the past 17 months, both on neutral territory in multi-team tournaments; whereas there had been 31 one-day matches between them from 2004 to 2008. They were becoming two-a-penny affairs, which at least had the by-product of dissipating passions.
India are the favorites, says the report, but the fact that they have won all four previous World Cup matches between them, including a quarter-final in Bangalore in 1996, means nothing. Pakistan, a motley travelling band who have spent two years crossing the cricket world in search of a game, are peaking at the right time. To say that they are not universally popular might be an understatement considering the nefarious activities in which they have too often been involved, but there remains something constantly alluring about them. All that anybody can ask now is for the cricket to be at the centre of the stage.
The United Nations acted swiftly to salvage the situation in Libya which could otherwise trigger economic crisis for the West. The effect of this resolution was visible when oil prices fell Friday after Libya agreed to an immediate cease-fire and stop to military operations. But did the prices plunge as a result of this decision alone? Analysts say that Libya’s decision to cease-fire was not voluntary; it was taken after the UN passed a resolution late Thursday night. According to Forbes, the heated political environment in the Middle East is still adding to uncertainty among investors in the longevity of energy prices, which have produced a 30% increase in gasoline prices for U.S. consumers from the same time last year. WTI crude oil fell 0.7% to $100.70 per barrel Friday morning.
According to a report in the Financial Times, the ceasefire with rebels was announced amid concerns in Tripoli that Thursday’s United Nations resolution calling for an end to the fighting could create a de facto partition of east and west Libya.
“Libya will accept that it is obliged to accept the UN Security Council resolution and has decided an immediate ceasefire and the stoppage of all military operations” Mr Koussa, Libyan Foreign Minister told a press conference in Tripoli on Friday.
International media, however, could not confirm if the cease-fire had actually taken place. The town of Misrata, to the east of Tripoli, was reported on Friday morning to be under attack by government forces, according to residents. Mr Koussa declined to answer reporters’ questions about what was happening in Misrata after he read a brief prepared statement. The ceasefire was greeted with jubilation in Benghazi, where crowds gathered in the streets to cheer the news.
Financial Times: Libya declares ceasefire after UN acts