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Friday, May 13, 2011

Ace of Spades: No More United States but....!!

The era of US economic dominance is rapidly coming to an end as an “American Gothic” age sets in and China becomes the new global leader, economic historian Niall Ferguson said.

Four primary factors—some caused by the financial crisis and others stemming from separate geopolitical issues—spell the final stages of the American age, Ferguson told attendees at the Skybridge Alternative Investment (SALT) conference here.

“The big story of your lifetime is that this period of Western predominance came to an end on your watch,” he said. “That happened because the developing part of the world is achieving the Industrial Revolution that the Americans experienced. This period is going to continue until China becomes the biggest economy in the world.”

For Ferguson, a professor of economics and history at Harvard, projections of economic gloom for America are hardly new.

He’s been critical of US debt and the profligate spending that has brought the nation to a budget deficit approaching $1.5 trillion.

He’s not the only one to predict that China is about to overtake the US on the global stage. But in a room full of hedge fund pros, the warnings weigh heavy for an industry just recovering from the financial crisis and the public black eye it sustained during the economic meltdown.

In his SALT presentation, Ferguson used slides to demonstrate a number of economic trends, not least among them the superiority of Chinese students particularly in math, and the nation’s tireless work ethic.

But it is a mix of what he called “Four Reasons to Feel American Gothic,” a message he punctuated with a slide of the famous Grant Wood painting, that pose the gravest threat to US hegemony.

The factors he cited:

The “mother of all Keynsian fiscal binges” in which the government spent nearly $1 trillion on stimulus from which there will be a “hangover” with only the timing at question. “Fiscal gaps this large are really hard to close by means of austerity,” he said. “If you don’t believe me, ask the Greeks, the Irish and the Portugese.”

A “massive monetary binge” in which the Federal Reserve ultimately will print money to the tune of nearly $3 trillion.

An ensuing spike in commodity prices, a process that has gone on virtually unabated since the beginning of Fed intervention and for which there has been a recent pullback. “It’s not just that people in the West get cheesed off and stop believing when the Fed says inflation is low,” he said. “It’s because high prices create geopolitical instability.”

China “is not the Soviet Union,” meaning the nation doesn’t have the same destabilizing economic conditions that brought down the former Communist republic.

In all, the obstacles posed against the US maintaining its global dominance will be too much to overcome, he said.

“The fiscal crisis of the United States is not going away. It is coming here soon,” Ferguson concluded. “The key decisions not just for the next four years but for the next 20 years will take place in Asia, not in the US. Welcome to the future.”


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