Is this the end of American economic supremacy?

In terms of exports it's losing out to China. Its currency and stock market capitalisation look set to be eclipsed. But at least there are some areas where America is still number one.

The Economist published a piece entitled "Come in number one, your time is up" about America's declining global status. The scale of decline is already significant.

American economy: no longer number one

America used to be the world's biggest exporter but The Economist points out that China's merchandise exports exceeded America's in the second half of last year and even more amazingly, China produced more cars than the United States. Very recently it has been reported that Toyota now produce more cars than General Motors, which gives a hollow ring to the old saying "What's good for General Motors is good for America".

More surprisingly, but understandable considering its perilous state, the dollar, although preferred by Central Banks as a reserve currency, is no longer the favourite cash for households and firms. There are now more euro notes and coins in circulation than there are dollars.

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In the international bond market, the euro, according to the Economist, has displaced the dollar as the main currency.

The Financial Times have separately calculated that the Wall Street stock market capitalisation has now been eclipsed by Europe if you include Russia.

Tongue-in-cheek, the Economist points out that America hasn't lost first place in everything. By a long way it's the world's biggest debtor nation, it uses the most energy and has the biggest prison population!

American economy: losing out to China

It's fairly evident that the American empire is in inevitable decline, like all empires that have gone before it. As we said in the previous issue, the current rate of China's economic growth, if maintained, will cause it to double in size about every eight years whereas the developed world is not likely to double in size quicker than every 25 years. Just draw the graph and see the exponential difference if over the next 25 years China doubles, redoubles and redoubles again whilst America doubles only once. Think about the Chindia middle class, growing in size and their standards of living equalising globally as the developed world's standard of living probably declines to allow the unstoppable developing world's to improve.

Interestingly, Woody Brock's most recent published series of essays started with an essay entitled "YEAR 2006 A GLOBAL TIPPING POINT" annus horribilis for the USA we would not wish to steal any of Woody's thunder by reporting in the newsletter what he may well be addressing in his talk on 25th June, but we can repeat his executive summary on this chapter:

"This past year proved to be a significant tipping point in the global balance of power. More specifically, it is the year in which it became clear that politically, militarily and economically the relative power of the United States has begun significantly to decline. This reverses the 25-year trend towards US ascendancy that emerged from the nadir of post-war US power in 1980. In analyzing the "relative power" of the US, we avoid ambiguity by utilizing the formal definition of relative power based upon the work of Messrs. John Nash and John Harsanyi in game theory.

Among other findings, we note that 2006 was the year when, not only did the US show many signs of weakness increased risk aversion most notably but also Russia and China each evidenced far more signs of strength than most observers expected.'

By John Robson & Andrew Selsby at RH Asset Management Limited, as published in the Onassis Newsletter, a fortnightly newsletter that gives insight into the investment markets.

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