U.S. Empire In Decline, Makes Way for China

“The US is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money,” reported Aaron Task of Yahoo Finance - Tech Ticker.

Ferguson concedes:

People have predicted the end of America in the past and been wrong. But let’s face it: If you’re trying to borrow $9 trillion to save your financial system …and already half your public debt held by foreigners, it’s not really the conduct of rising empires, is it? Excessive debt is usually a predictor of subsequent trouble.

The report highlights Ferguson as saying America today is comparable to Britain circa 1900: a dominant empire underestimating the rise of a new power. In Britain’s case back then it was Germany; in America’s case today, it’s China. Ferguson said:

When China’s economy is equal in size to that of the U.S., which could come as early as 2027 … it means China becomes not only a major economic competitor - it’s that already, it then becomes a diplomatic competitor and a military competitor.

Source: Aaron Task, Yahoo Finance - Tech Ticker, October 20, 2009.

Comments

[bluesky123:]

China is smart. It is aggressively racing around the world forging FDI with other emerging markets. The Financial Times did an excellent article "China Appetite Boosts South Africa" on how China was the 5th largest export market for South Africa 1 year ago. Today China is the top export market for South Africa.

The FT did another excellent article on India "Basic Services Remain a Work in Progress". That article noted expansion is so fast, India is running out of labor. Imagine that. And half the population in India is under the age of 25. India's growth is exploding.

The top 100 brands in China have a surprisingly large number of US companies on that list. The message to corporate America is seek your growth abroad.

Oct 25 07:08 AM

[Dave Wrixon:]

Niall grossly underestimates how quickly things are developing. It won't take more than a decade. Look how the Hilter changed the face of Europe in less than a decade starting from zero. Look how quickly the British Empire caved in. How quickly communism rose and how quickly it imploded? How long did it take for the Japanese Miracle to collapse. These things don't take generations.

Oct 25 07:21 AM

[Listen:]

I remember my father telling me back in the 60's how communist China could march troops off of a cliff, 1 mile wide, hour after hour, day after day, and still have plenty of men to fight any army.

Oct 25 09:49 AM

[The Geoffster:]

If I recall correctly, Germany was still smoldering from WW1 when Hitler rose from the ashes.

Oct 25 10:05 AM

[Alphameister:]

When I hear comments today to the effect that it is a mistake to underestimate American ingenuity in getting past this country's huge problems, my reaction is, "Don't mistake the America of today with the America of earlier generations. I appreciate the patriotism of such comments, but not the analytical perspicacity. The "flower children" have taken control in the nation's capital, the nation as a whole has become all about instant gratification, and the work ethic (and arguably ethics in general) has suffered a serious decline across several generations.

I wish my country well and hope it will get back on the right track, but all my analytical investment skills tell me that China especially and emerging markets generally provide much better odds of investment success.

Oct 25 10:16 AM

[Mad Hedge F...:]

bdt The US is turning into Europe. Think high taxes, chronic high unemployment, more government involvement in everything, less innovation, and much lower growth, in exchange for a social safety net and better coffee. That is the message the markets told us by retreating to the 6,000 handle in March, levels not seen since 1996, and down 54% from the 2007 peak. Equity prices will shrink to multiples, in line with permanently lower long term growth rates of maybe 1%-2%, a shadow of the 5% rate seen for much of this decade. Hint: that’s a lot lower than here. Perhaps this is what mature economies are supposed to look like. If someone is holding a gun to your head and you must buy American stocks, only select names that get the bulk of their earnings from overseas. Microsoft (MSFT), Intel (INTC), Oracle, (ORCL), Cisco (CSCO) all get 60%-70% of their profits from overseas, where up to 90% of the real economic growth will come from for the next decade. Commodity, agricultural companies, and their ETF’s also fit this picture. As for me, I think I’ll move to Tahiti and live off of coconuts and freshly speared fish, wearing only a loin cloth. Anything is better than becoming French.

Oct 25 10:35 AM

[Dave Wrixon:]

Hilter brought the economy up from nothing, but largely on creation of currency and credit. The bottom line was he had to start a war otherwise the Germany economy would have imploded. There was probably a similar logic behind Bush's invasion of Iraq and Afganistan. Well at least he had a game plan, however, misguided!


On Oct 25 10:05 AM The Geoffster wrote:

> If I recall correctly, Germany was still smoldering from WW1 when
> Hitler rose from the ashes.

Oct 25 12:13 PM

[Dave Wrixon:]

That's all very well but citizens of countries with large impoverished population usually struggle to get Visas.

Tahiti is also an odd place to seek to avoid French influence, unless of course you did your geographical studies in the US.


On Oct 25 10:35 AM Mad Hedge Fund Trader wrote:

> bdt The US is turning into Europe. Think high taxes, chronic high
> unemployment, more government involvement in everything, less innovation,
> and much lower growth, in exchange for a social safety net and better
> coffee. That is the message the markets told us by retreating to
> the 6,000 handle in March, levels not seen since 1996, and down 54%
> from the 2007 peak. Equity prices will shrink to multiples, in line
> with permanently lower long term growth rates of maybe 1%-2%, a shadow
> of the 5% rate seen for much of this decade. Hint: that’s a lot lower
> than here. Perhaps this is what mature economies are supposed to
> look like. If someone is holding a gun to your head and you must
> buy American stocks, only select names that get the bulk of their
> earnings from overseas. Microsoft (seekingalpha.com/symbo...),
> Intel (seekingalpha.com/symbo...), Oracle, (seekingalpha.com/symbo...),
> Cisco (seekingalpha.com/symbo...) all get 60%-70% of their
> profits from overseas, where up to 90% of the real economic growth
> will come from for the next decade. Commodity, agricultural companies,
> and their ETF’s also fit this picture. As for me, I think I’ll move
> to Tahiti and live off of coconuts and freshly speared fish, wearing
> only a loin cloth. Anything is better than becoming French.

Oct 25 12:20 PM

[Glen L.:]

Mad Hedge: " As for me, I think I’ll move to Tahiti and live off of coconuts and freshly speared fish, wearing only a loin cloth. "

That's a little too much information.

"Anything is better than becoming French."

Now, here we go again, insulting the whole race just because the Left has pretty much taken over there. They've been in power now for about 220 years. Stability!

Oct 25 12:27 PM

[akhait:]

Alphameister, you are right, this country has built up huge economic advantage over the past 5-6 generations, in both efficient economic structure and capacity, but we are living off that now, and it's not sustainable. A nation, or a society, either stays young and hungry by reinventing itself and changing with times, or gets passed by by whose who adapt better. We already beat the odds by staying dominant for a long time, but our focus on growth and invention is gone, replaced by redistribution and appeasement. As Mad Hedge Trader said, we are turning into Europe (specifically, sclerotic, inefficient Europe), but our society is not even designed for that, so it will be an inferior version of Europe, with social solidarity under more strain than there.
We compiled too many trade-offs, social obligations, and restrictions in the path of economic growth, and every one of them carries an economic price of inefficiency. Every ecological impact permit, every court injunction, every unearned social obligation is a burden. A developed economy can afford a few, but it is still a burden. A society that figures a way to deal with these issues more efficiently will eventually bypass us economically. And it's becoming obvious "eventually" may mean "soon" in case of China.

Oct 25 12:36 PM

[Pauly B:]

China still needs consumers for their products and if they drive America and Europe down they will likely have political unrest as their economy gets weaker. In this case it takes three to tango and I am sure their leadership understand that.

Both parties in Washington have shown little leadership in dealing with imbalances in the system whether it be currencies or trade. Whats more disturbing is that current FED policy allows China's economy to be supported by the American Taxpayer with this massive worldwide liquidity. .

Oct 25 02:07 PM

[bbowen7:]

Don't blame our decline on China. If we want to consume more than we produce, there is always somebody willing to make stuff and sell it to us on credit. Until we run out of credit.

Oct 25 03:10 PM

[parky:]

Oh come on guys! China has enough of a problem just feeding and hauling away waste every day for 1.3 billion or so people rather than conquering the world. They don't have much of an Air Force or Navy and their Army is mostly conscripts with a uniform and a rifle. How can they project power if they don't have the means to get troops, etc. out of their own country? US has 10 carrier task force groups. China can't even spell "task force."

Major portions of the country are polluted, air,land water ways etc. They don't have enough food, water, energy or modern manufacturing methods. Most of the stuff that they do make is of questionable quality and little is of advanced technology. They have 3 times the population of US but only1/4th or our GDP.
The Russians hate them as do the Indians, Japanese, and Koreans.

They will be suffering major demographic problems due to the "only 1 child" rule. Mao called the US a paper tiger back in the '60s. Really!!!!

Oct 25 03:30 PM

[Woz2000:]

And what did we say about Iraq and Afghanistan when we invaded? When do we get to say Mission Accomplished?


On Oct 25 03:30 PM parky wrote:

> Oh come on guys! China has enough of a problem just feeding and hauling
> away waste every day for 1.3 billion or so people rather than conquering
> the world. They don't have much of an Air Force or Navy and their
> Army is mostly conscripts with a uniform and a rifle. How can they
> project power if they don't have the means to get troops, etc. out
> of their own country? US has 10 carrier task force groups. China
> can't even spell "task force."
>
> Major portions of the country are polluted, air,land water ways
> etc. They don't have enough food, water, energy or modern manufacturing
> methods. Most of the stuff that they do make is of questionable quality
> and little is of advanced technology. They have 3 times the population
> of US but only1/4th or our GDP.
> The Russians hate them as do the Indians, Japanese, and Koreans.
>
>
> They will be suffering major demographic problems due to the "only
> 1 child" rule. Mao called the US a paper tiger back in the '60s.
> Really!!!!

Oct 25 04:05 PM

[jtareen:]

Hahaha. People who make these predictions have no understanding of China. China is potentially the most imbalanced nation in the world in terms of wealth concentration. Hence a communist country that does not allow any free thought and free discussion. The coast where most of the wealth is concentrated has traditionally been under the influence of the west. The western capitalist interest wield more influence in China than what meets the eye. Today's China is a result of large amount of foreign direct investment from the west, precisely because it was a closed society with power concentrated in few hands. This allows for less environmental and labor regulations and cost. Lower the labor cost, higher the profits. US and European interest chose China to be the world producer of goods. Up untill 1970's and 1980's China was one of the poorest nations in the world.

Oct 25 04:53 PM

[The Recusant:]

Alphameister -- Whoa there big fella, it wasn't entirely the "flower children" and their instant gratification that got us all into this situation. The previous generation did their bit, too, in expanding military budgets, overspending federal budgets, and printing more money to solve every problem. Their overconfidence and arrogance in winning WWII got us into Korea (stalemate), Vietnam (withdrawal), and Iraq #1 (withdrawal/win?). It was Nixon who took us off of the gold standard permanently and freed us up to print as much money as we wanted. Reagan handily contributed to spending like a drunken sailor and sent our jobs overseas. This problem has been brewing for decades and let's not blame any single age group. The "flower children" are merely maintaining status quo.

Oct 25 05:07 PM

[Dave Wrixon:]

Yes, they need somebody to work for, and that means having indolent Americans sat around on their big fat arses consuming their product for free.

Are you absolutely sure the Chinese are not bright enough to come up with a better plan than that?


On Oct 25 02:07 PM Pauly B wrote:

> China still needs consumers for their products and if they drive
> America and Europe down they will likely have political unrest as
> their economy gets weaker. In this case it takes three to tango
> and I am sure their leadership understand that.
>
> Both parties in Washington have shown little leadership in dealing
> with imbalances in the system whether it be currencies or trade.
> Whats more disturbing is that current FED policy allows China's economy
> to be supported by the American Taxpayer with this massive worldwide
> liquidity. .

Oct 25 05:16 PM

[Dave Wrixon:]

That was certainly the plan!


On Oct 25 04:53 PM jtareen wrote:

> Hahaha. People who make these predictions have no understanding of
> China. China is potentially the most imbalanced nation in the world
> in terms of wealth concentration. Hence a communist country that
> does not allow any free thought and free discussion. The coast where
> most of the wealth is concentrated has traditionally been under
> the influence of the west. The western capitalist interest wield
> more influence in China than what meets the eye. Today's China is
> a result of large amount of foreign direct investment from the west,
> precisely because it was a closed society with power concentrated
> in few hands. This allows for less environmental and labor regulations
> and cost. Lower the labor cost, higher the profits. US and European
> interest chose China to be the world producer of goods. Up untill
> 1970's and 1980's China was one of the poorest nations in the world.

Oct 25 05:18 PM

[Dave Wrixon:]

And Americans wonder why the World hates them?


On Oct 25 03:30 PM parky wrote:

> Oh come on guys! China has enough of a problem just feeding and hauling
> away waste every day for 1.3 billion or so people rather than conquering
> the world. They don't have much of an Air Force or Navy and their
> Army is mostly conscripts with a uniform and a rifle. How can they
> project power if they don't have the means to get troops, etc. out
> of their own country? US has 10 carrier task force groups. China
> can't even spell "task force."
>
> Major portions of the country are polluted, air,land water ways
> etc. They don't have enough food, water, energy or modern manufacturing
> methods. Most of the stuff that they do make is of questionable quality
> and little is of advanced technology. They have 3 times the population
> of US but only1/4th or our GDP.
> The Russians hate them as do the Indians, Japanese, and Koreans.
>
>
> They will be suffering major demographic problems due to the "only
> 1 child" rule. Mao called the US a paper tiger back in the '60s.
> Really!!!!

Oct 25 05:20 PM

[bob adamson:]

The rise of China has been predicted, often with great concern (witness the ‘Yellow Peril” obsession of Kaiser Wilhelm II of Germany), for over 100 years and the current US angst witnessed in many of the comments to this article have their parallel in the 1980s concerning Japan. The reality is that Europe and Japan have recovered from their low point immediately following WW II and India and China are finally regaining something of their historical roles in the world after several centuries of eclipse. Brazil is gaining the place that its size, population and resources warrant. Someday Russia will regain its balance and play a larger economic role. In short, the 30 years immediately following WW II witnessed a special ascendancy for the US that couldn’t last.

That said, all these countries and the rest of the world besides face many challenges as well as opportunities; challenges that dwarf those facing the US in many cases. Further, while each country naturally wants to maximize and secure its interests, the US does not face the sorts of aggressive challenges to its role and interests from any of them that the UK faced immediately before WW I to its. While the historical analogy that best represents the challenges the US faces today are the challenges the UK faced at the beginning of the 20th century, the challenge the US now faces from China is much more like the UK/US rivalry of that era than the UK/German rivalry. I could elaborate but only if someone questions the logic of my analogy.

The US will remain “the first among equals” for the foreseeable future but the emphasis will shift somewhat more to the ‘equals’ aspect. Like the citizens of the UK for the past century, US citizens have every reason to expect to excel and live well even as they and their country experience of the best of life more in parallel with other countries and their citizens.

Oct 25 07:18 PM

[Fabien Hug:]

Poor bloke. Tahiti is French and French women, they are something...


On Oct 25 10:35 AM Mad Hedge Fund Trader wrote:

> bdt The US is turning into Europe. Think high taxes, chronic high
> unemployment, more government involvement in everything, less innovation,
> and much lower growth, in exchange for a social safety net and better
> coffee. That is the message the markets told us by retreating to
> the 6,000 handle in March, levels not seen since 1996, and down 54%
> from the 2007 peak. Equity prices will shrink to multiples, in line
> with permanently lower long term growth rates of maybe 1%-2%, a shadow
> of the 5% rate seen for much of this decade. Hint: that’s a lot lower
> than here. Perhaps this is what mature economies are supposed to
> look like. If someone is holding a gun to your head and you must
> buy American stocks, only select names that get the bulk of their
> earnings from overseas. Microsoft (seekingalpha.com/symbo...),
> Intel (seekingalpha.com/symbo...), Oracle, (seekingalpha.com/symbo...),
> Cisco (seekingalpha.com/symbo...) all get 60%-70% of their
> profits from overseas, where up to 90% of the real economic growth
> will come from for the next decade. Commodity, agricultural companies,
> and their ETF’s also fit this picture. As for me, I think I’ll move
> to Tahiti and live off of coconuts and freshly speared fish, wearing
> only a loin cloth. Anything is better than becoming French.

Oct 25 09:12 PM

[oldetimer:]

The decline of the U.S. has been going on for decades. For most of that time the symptoms were primarily domestic, increases in crime, drug use, etc., but most of all, the increasing irresponsibility of its citizens, and that fact that increasingly that irresponsibility was directly or indirectly rewarded. E.g. "What, you were unable to pass the exam? Don

Oct 25 11:02 PM

[captainjohann:]

Basically it is the GREED of American corporates. Chinese capitalists are also greedy but they have a controlled greediness. The worrying factor is the FEAR Americans are showing. See how Obama didnot even meet Dalai Lama .He is unable to decide on Afghan policy due to China

Oct 26 12:55 AM

[chris coonan:]

I have been in China for 6 months, and am believing that China will dominate the world economy sooner than this article might suggest.

America is on the verge of another huge collapse, and at the same time, may have the most to gain by coming to China, and introducing more services, products, culture and friendship.

The Chinese are very open to America, and at the same time, careful. America has been a bit of a bull in a china shop, and has broken a lot of pieces....

American's are innovative, welcoming and good people. The Chinese are hard working, welcoming and good people. The Chinese have a long history of concessions to the West, and have opened the borders again, just like in the 19th Century. Innovation and raw talent will keep America a partner with China. Politics and financial malaise will reduce our chances.

America has a lot to offer the Chinese, and the Chinese are doing the best they can, to provide wealth and stability for the world's largest nation. I see that America could also take another road, less traveled, and that is the road of fear, protectionism, and retribution. It would prove to be a disaster for the USA, and further marginalize the relavance of a declining Superpower.

The Beatles sang about a world with no countries, and while this isn't in the cards for the short term, there is a wisdom to the attitude. The best things about America, is the diversity of it's people, food choices, and innovation. Figure out how to celebrate that, and we just might have a chance.

Oct 26 04:00 AM

[ArtfulDodger:]

Very, very well said, Alpha.

My conclusion exactly, as I wrote here: seekingalpha.com/user/...


On Oct 25 10:16 AM Alphameister wrote:

> When I hear comments today to the effect that it is a mistake to
> underestimate American ingenuity in getting past this country's huge
> problems, my reaction is, "Don't mistake the America of today with
> the America of earlier generations. I appreciate the patriotism of
> such comments, but not the analytical perspicacity. The "flower children"
> have taken control in the nation's capital, the nation as a whole
> has become all about instant gratification, and the work ethic (and
> arguably ethics in general) has suffered a serious decline across
> several generations.
>
> I wish my country well and hope it will get back on the right track,
> but all my analytical investment skills tell me that China especially
> and emerging markets generally provide much better odds of investment
> success.

Oct 26 04:27 AM

[ArtfulDodger:]

You are dead right, Dave. It looks to me China is doing everything right, and we're doing everything wrong.

Good comment. My same conclusion I wrote here: seekingalpha.com/user/...


On Oct 25 07:21 AM Dave Wrixon wrote:

> Niall grossly underestimates how quickly things are developing. It
> won't take more than a decade. Look how the Hilter changed the face
> of Europe in less than a decade starting from zero. Look how quickly
> the British Empire caved in. How quickly communism rose and how quickly
> it imploded? How long did it take for the Japanese Miracle to collapse.
> These things don't take generations.

Oct 26 04:44 AM

[jtareen:]

I think if enough people bang the drum of China's ascendancy and America's decline. Alas we will all start shifting our capital there and indeed make this self created prophecy come true. The economy is all mental. As Americans our mentality has become of defeat because like someone said we are not getting the quick gratification any longer. Folks let's invest back in America and create real capital instead of massive liquidity in the system which only creates an imbalance in the system. If everyone gives up on America then indeed it may be true that our greatest days are behind us.

Thanks

Oct 26 09:38 AM

[Nadia Kageff:]

TO KEEP AMERICA STRONG ,WE MUST DO MORE MANUFACTURING. KEEPING OUR PEOPLE IN JOBS, AND OFF THE UNEMPLOYMENT LINES. MORE EXPORTING GOODS,
THAN INPORTING MEDIOCRE GOODS. GIVE TAX INCENTIVES TO MANUFACTURERS TO STAY HERE. CHARITY BEGINS AT HOME.STOP SENDING MONEY OUT TO COUNTRIES WHO WANT US ON OUR KNEES. THEY ARE A BOTTOMLESS PIT.
THESE GOVT'S. POCKET MOST OF THE MONEY WHILE THEIR
HANDS ARE STILL OPEN FOR MORE . WE SUBSIDIZE THE CORRUPT HERE AND AS WELL AS ALL AROUND THE GLOBE.
NO WONDER WE ARE DOING SO BADLY.

Oct 26 04:49 PM

[ETFdesk.com:]

See if the Harvard guy is right, track this call over time.... www.etfdesk.com/headli...

Oct 27 02:44 PM

[blonde molly:]

you wanna invest in Obama, reid, pelosi, and frank, go ahead; see how you come out. i'm going for china and have been in and out for years.

they are moving toward capitalism; we're moving toward socialism/fascism. you figure where is the best place to invest!


On Oct 26 09:38 AM jtareen wrote:

> I think if enough people bang the drum of China's ascendancy and
> America's decline. Alas we will all start shifting our capital there
> and indeed make this self created prophecy come true. The economy
> is all mental. As Americans our mentality has become of defeat because
> like someone said we are not getting the quick gratification any
> longer. Folks let's invest back in America and create real capital
> instead of massive liquidity in the system which only creates an
> imbalance in the system. If everyone gives up on America then indeed
> it may be true that our greatest days are behind us.
>
> Thanks

Oct 28 02:38 PM

[NaomiY:]

US decline is not caused by China but by its own reckless spending especially on military and entitlement spending.

Oct 28 04:21 PM