Tag Archive: USA

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.

Related story:

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

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?

Related link:

Libya turmoil; Interventionism is West’s new colonialism…

Pakistanis are a strange people. They hate America yet they love Green Cards and can pay any price to get them. Given an opportunity, every one of them will migrate to the land of opportunities. In spite of negative public perception about Americans, the USA has always rescued Pakistan in the time of need. However, Pakistan is not reciprocating the gesture when an American has landed himself in trouble by shooting two Pakistani boys and causing the death of a third young man. And look at the families of those killed. They have been offered money and Green Cards but they have rejected the offer. Pakistanis have one problem though; they are proud people in their own way. They can sell anything but blood of their loved ones.

According to media reports, the families had been offered Green Cards and money for withdrawing the case. Brother of a boy who was gunned down by Davis told the participants of a protest rally that the family did not want cash or any ‘rewards’. “We will not accept anything like that. I am ready to give money to the Americans if they hand over Davis,” he said.

A group of about 500 people including students, lawyers, doctors, and civil society members walked from Qartaba Chowk (where the incident had occurred) to the US Consulate. Once the protesters reached the Consulate they staged a sit-in and shouted slogans demanding a trial of the accused in the country. They demanded the Pakistani government not to hand over Davis to the US government, while asking that he be hanged “for causing the death of three innocent citizens”.

They said that they did not have any hopes from the government but were confident that the Chief Justice of Pakistan (CJP) would ensure that justice is served.

All speakers, including family members of the deceased, also demanded CJP Iftikhar Muhammad Chaudhry to take suo motu notice to ensure that the government does not “favour” the accused American. The protesters condemned the judicial magistrate’s court for granting bail to Davis for carrying illegal weapons.

The rally was led by Pakistan Tehreek-e-Insaf Lahore president, Mian Mahmoodul Rasheed.

Starting from Qartaba Chowk, the protesters reached the US Consulate after passing through Queen’s Road, The Mall, Race Course Road and Egerton Road. The participants shouted anti-US slogans through loud speakers installed on a mini truck. Announcements were also made to inviting passers-by to join the rally, which were somewhat successful.

A great country like Pakistan having world-class leaders and a strong democracy guaranteed by all the stakeholders should not have to follow the footprints of foreigners, particularly westerners. And UK should be the worst example to follow. They have been our colonizers and can never be our friends, so why follow them. Moreover they may be setting inappropriate examples for us to dare us to follow them. This may be a perfect Zionist conspiracy.

This post is intended to forewarn our economic managers not to follow the examples set by the UK’s new Premier. A Businessweek column by Mark Gilbert informs that Cameron is about to embark upon an unprecedented experiment. He has told government departments to brace for spending cuts of as much as 40 percent as he seeks to shrink both the UK’s record budget deficit and a public sector that now accounts for nearly 20 percent of all UK jobs. They may have experienced budget deficit for the first time but for us, this is just normal every year in June. We are used to it. UK, with its growing population of South Asian origin, should also get used to it.

The paper informs that with the biggest deficit among Group of Seven nations and the worst looming shortfall in Europe this year according to European Union forecasts, the UK doesn’t want to be the next Greece [he could not write Pakistan because Pakistan is already known around the world for other reasons]. Less than a minute into a June 22 budget speech, Chancellor of the Exchequer George Osborne suggested that bond vigilantes are driving U.K. economic policy. “Questions that were asked about the liquidity and solvency of banking systems are now being asked of the liquidity and solvency of some of the governments that stand behind those banks,” he said. “I do not want those questions ever to be asked of this country.” The austerity debate is now not about whether fiscal tightening in advanced economies is necessary, but on when it should begin in earnest.

That’s why policymakers around the world will be watching Britain—especially those at the Federal Reserve, which is not yet ready to follow Osborne’s lead. The Fed’s colors are still tied to the mast of maintaining stimulus and keeping borrowing costs as close to zero as possible. At its June 22-23 meeting, the Fed said it would even “need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably.”

America has remained Pakistan’s traditional and perpetual ally at every hour of its (America’s) need and for this reason, both the countries passionately share at least one passion- spending. Spend at all costs, even if you have to beg, borrow or steal and even sell grandma’s jewelry or/and dispose off family silver, but you must spend. Spend and unlike USA, spend out of public kitty. That will keep the economy going. This is the reason, Pakistan and the USA, even after realizing the need to tighten the belt, are not ready to accept austerity. Both want someone else to do it first and UK has done it. Are we ready to follow? The columnist writes: “With the world economy threatening to slide into a double-dip recession, both the US and the UK are nevertheless talking about fiscal austerity. The only good news for Obama is that Cameron is going first.”

Watch out guys. Don’t buy austerity and never ever fall into its trap.

This is in continuation of the post: Before you grumble……posted in this Blog. No doubt, economic resources along with natural resources play a significant role in making a country rich or poor but the role played by some of the human resource can not be ignored. It is, in fact a few at the helm of the economy and management of these resources who alone can make or break any economy. If the leaders are bulldozers, they can make you poor and yet scream at the top of their voice that their lives are dedicated to the poor.

These lives are dedicated to the poor to the extent of winning their votes; in a country like Pakistan, a person for a politician is not more than a mere ballot paper, a parchee which can make a difference at the time of elections. A rather interesting situation has been reported by US magazine, The Time in its current edition about the state of New Jersey where according to the magazine, taxes are high, the budget’s a mess, government is inefficiently organized, and the public pension fund is blown to kingdom come. Which makes New Jersey a lot like most other states in 2010.

What makes the state unusual is its rookie governor, a human bulldozer named Chris Christie, who vowed to lead like a one-termer and is keeping his promise with brio. He has proposed chopping $11 billion from the state’s budget — more than a quarter of the total — for fiscal year 2011 (which starts July 1). He’s backing a constitutional cap on property taxes in hopes of pushing the state’s myriad villages and townships to merge into more efficient units. He’s locked in an ultimate cage match with the New Jersey teachers’ union. It may be the bitterest political fight in the country — and that’s saying something this year. A union official recently circulated a humorous prayer with a punch line asking God to kill Christie. You know, New Jersey humor. And in an interview with the Wall Street Journal, Christie didn’t talk about the possibility that his fiscal initiatives might be compromised or defeated; he pictured himself “lying dead on State Street in Trenton,” the state capital. Presumably that was a figure of speech.

Are you surprised? Don’t you think New Jersey is just another province of the Fatherland? The politicians don’t see to realize that its economy and they just can’t play with it like they play politics. By the way, politics in this part of the world is synonymous with intrigues, scheming, cheating and plundering.