Will China be the world’s largest economy in next five years?

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.

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The Age of America comes to an end, finally…..

Indian stoles all set to steal the show at the Royal Wedding….

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.

Battle of Britain; sea preserves a rare “Flying Pencil”….

Those who have watched the movie, Battle of Britain may also have seen Dornier 17 in action.  Also named as Fliegender Bleistift (German: “flying pencil”), it was a WWII light bomber used by Germany in the Battle of Britain of 1940. This is a rare World War Two German bomber, shot down over the English Channel in 1940 and hidden for years by shifting sands at the bottom of the sea, is so well-preserved a British museum wants to raise it. According to media reports, the Dornier 17 — thought to be world’s last known example — was hit as it took part in the Battle of Britain. It ditched in the sea just off the Kent coast, southeast England, in an area known as the Goodwin Sands. The plane came to rest upside-down in 50 feet of water and has become partially visible from time to time as the sands retreated before being buried again. Now a high-tech sonar survey undertaken by the Port of London Authority (PLA) has revealed the aircraft to be in a startling state of preservation.

Ian Thirsk, from the RAF Museum at Hendon in London, told the BBC he was “incredulous” when he first heard of its existence and potential preservation.

“This aircraft is a unique aeroplane and it’s linked to an iconic event in British history, so its importance cannot be over-emphasized, nationally and internationally,” he said.

“It’s one of the most significant aeronautical finds of the century.”

Known as “the flying pencil,” the Dornier 17 was designed as a passenger plane in 1934 and was later converted for military use as a fast bomber, difficult to hit and theoretically able to outpace enemy fighter aircraft. In all, some 1,700 were produced but they struggled in the war with a limited range and bomb load capability and many were scrapped afterwards. Striking high-resolution images appear to show that the Goodwin Sands plane suffered only minor damage, to its forward cockpit and observation windows, on impact.

“The bomb bay doors were open, suggesting the crew jettisoned their cargo,” said PLA spokesman Martin Garside.

Two of the crew members died on impact, while two others, including the pilot, were taken prisoner and survived the war.

“The fact that it was almost entirely made of aluminum and produced in one piece may have contributed to its preservation,” Garside told Reuters.

The plane is still vulnerable to the area’s notorious shifting sands and has become the target of recreational divers hoping to salvage souvenirs. The RAF museum has launched an appeal to raise funds for the lifting operation.

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Daily Mail:   Nazi bomber comes back from the deep: Dornier shot down in 1940 is found off the coast of Kent

BRIC finally sees its political opportunity in Libya intervention….

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?

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Libya turmoil; Interventionism is West’s new colonialism…