PeakTrader.com

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PeakTrader said...

The 2012 election may be a repeat of the 2010 election:

A Gary Shilling’s 2012 Investment Themes
January 10th, 2012

"...U.S. real annual GDP growth in future years - 2%, compared to the zero growth since the fourth quarter 2007 business peak and the 3.7% annual growth in the 1982-2000 salad days.

...severe recession now unfolding in Europe...hard landing in China with real GDP growth dropping back to 5% to 6% annual rates, well below the 8% needed to provide jobs for new labor force entrants.

We’re also forecasting a moderate recession in the U.S. as consumers retreat from their recent spending strength that flies in the face of declining real incomes.

In sum, we expect a global recession this year. A 2012 recession starting from a fourth quarter 2011 business peak would commence four years after the previous top in the fourth quarter of 2007."

A. Gary Shilling graduated from Amherst College, AB in physics - magna cum laude - Phi Beta Kappa, and earned an MA and PhD in economics at Stanford University.

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Higher wages may be a correct policy for China, although it's an export-led economy instead of a consumer-driven economy.

Consequently, higher wages may lead to unemployment and inflation more than consumption.

Anyway, China has many major structural problems to correct, and they've been "festering" for a long time, since it hasn't had a massive "creative-destruction" process yet.

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China's GDP is an illusion. The private sector is small (consumption fell from 45% to 36% of GDP in the past decade). Basically, China is a giant assembly plant.

And there's no "Lewisian turning point." There are over 100 million Chinese working in manufacturing, and one billion peasants making almost nothing.

In the 1980s, many believed Japan was on the verge of surpassing the U.S. economy, although the Japanese lived in tiny rooms they called houses, drove compact cars, paid $5 for a glass of orange juice, $25 for a steak, $15 for a small piece of sushi, etc.

What the Chinese do best is corruption, crony capitalism, misallocate resources, cause negative externalities, prevent creativity, create inefficiency, and export much of its GDP.

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VangelV, I've explained before how a strong U.S. military makes the U.S. stronger, not weaker, particularly in the "world order."

What's making the U.S. weaker is the shrinking private sector over the past four years.

For example, Dr Perry's article link posted on Mar 1st states:

"The U.S. industry was selling nearly 17 million vehicles a year on average in the 10-year period ending in 2007.

Last year, the industry sold 12.8 million vehicles.

The average vehicle on the road is a record 10.8 years old."

Over the past four years, the federal government expanded (e.g. spending $1 trillion a year more and regulating more), the private sector shrunk, and now the military has to shrink too.

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Both the recession and depression, over the past four years, could've been avoided if enough dollars from trade deficits were "refunded" to households in the form of tax cuts.

However, the federal government decided to spend those dollars instead.

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ws4whgfb says: "In military spending it is the absolute amount of spending that matters not per capita spending."

Without a fundamentally strong private sector, a large Chinese military will collapse the entire economy, like the Soviet Union.

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MP

1. According to the IMF, China's per-capita GDP in 2011 was $5,200, putting it on par with the per-capita GDP of Angola ($5,061), Macedonia ($5,012) and Algeria ($5,001).

2. Adjusting for Purchasing Power Parity, China's per-capita GDP in 2011 increases to $8,400, putting it on par with Ecuador ($8,335) and Belize ($8,275).

3. Comparing the U.S. to China: Per-capita GDP (in 2011 dollars) in the U.S. first reached a level of $5,200 back in 1850, more than 160 years ago (see chart), and reached $8,400 back in 1905, more than a century ago.

Bottom Line: Yes, it's true that China has made phenomenal economic gains over the last several decades and has become the second largest economy in the world, and it's true that China will probably surpass the U.S. to become the world's largest economy within the next decade. But on a per-capita basis, the U.S. is still a full century ahead of China, and it could take many generations of economic growth in China before it even comes close to approaching the per-capita GDP in the U.S.

Chart:

http://2.bp.blogspot.com/-rrgLf7iMpvc/T1Di9TNLpPI/AAAAAAAAQ9M/r_y0hzUBtEo/s1600/chinausgdp.jpg

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