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China Just Overtook The US As The World’s Largest Economy – Yahoo Finance

China Just Overtook The US As The World’s Largest Economy – Yahoo Finance. By Mike Bird, Business Insider, October 8, 2014

REUTERS/Shannon Stapleton Sorry, America. China just overtook the US to become the world’s largest economy, according to the International Monetary Fund.

Chris Giles at the Financial Times flagged up the change. He also alerted us in April that it was all about to happen.

Basically, the method used by the IMF adjusts for purchasing power parity, explained here.

The simple logic is that prices aren’t the same in each country: A shirt will cost you less in Shanghai than in San Francisco, so it’s not entirely reasonable to compare countries without taking this into account. Though a typical person in China earns a lot less than the typical person in the US, simply converting a Chinese salary into dollars underestimates how much purchasing power that individual, and therefore that country, might have. The Economist’s Big Mac Index is a great example of these disparities.

China_Just_Overtook_The_US-c9374c7a288bdc195dc5869e63f4bf95

So the IMF measures both GDP in market-exchange terms and in terms of purchasing power. On the purchasing-power basis, China is overtaking the US right about now and becoming the world’s biggest economy.

We’ve just gone past that crossover on the chart below, according to the IMF. By the end of 2014, China will make up 16.48% of the world’s purchasing-power adjusted GDP (or $17.632 trillion), and the US will make up just 16.28% (or $17.416 trillion):

China US economies

IMF, Google Public Data Explorer Adjusted for purchasing power, China’s economy is now the world’s largest. It’s not all sour news for the US. It’ll be some time yet until the lines cross over in raw terms, not adjusted for purchasing power. By that measure, China still sits more than $6.5 trillion lower than the US and isn’t likely to overtake for quite some time:

View gallery

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US China economies

IMF, Google Public Data Explorter But in terms of the raw market value of China’s currency, it still has a long way to go.

Editor’s comment

Well, ‘Financial Times’ is the first to proclaim that China is the number one economy in the world, however, in the next couple of years, all of the economic literature will clearly demonstrate that China is the number one economy. So, how did this happen? For the United States, the decline started in 1980 with Ronald Reagan administration. The credo for this administration is that the rich aren’t rich enough, the corporations aren’t big enough and the regular workers make too much money. The results – loss of good paying jobs to other countries especially manufacturing jobs. And, in 2014, the income inequality in the U.S. is at its highest in over a hundred years, 90% of all profits go to the top. Salaries for workers have plateaued  and, possibly, will decrease in the future (especially when taking into inflation). China’s story starts in 1990, when the Chinese government went all in on manufacturing. By 1995, by hook and by crook, they were allowed as a preferred trade partner through the World Trade Organization agreements, which meant they could charge any import tax rate on U.S. imports coming into China, while getting 0% tax placed on their products shipped into the USA. This was the floodgate that caused an immediate and irreversible decline in jobs, especially manufacturing jobs, all the while sucking money out of the U.S. economy and directly deposited into the Communist Chinese banks.

The Future

The future of the economy of the U.S. is not very rosy, especially when it continually is aiding its main competitor, China. Whereas the Chinese government is doing everything it can to encourage its economy to grow, large stimulus package during The Great Recession, huge infrastructure projects – improving freeways, bridges, airports and bullet trains and putting millions to work, the United States has done nothing (except for the minor stimulus package of 2009), and has been totally hands off, much like the Herbert Hoover administration during The Great Depression. Despite verbal commitments from the President and some Congressmen – nothing has been done. All projects to: increase jobs, raise wages, bring jobs back from foreign countries have time and time blocked by the multi-national corporations (because it is in their best financial interests). As the mid-term elections in 2014 looms, the future looks even bleaker with a good possibility that the Party of the multi-national corporations, the GOP, will become a majority in the Senate, together with their majority in the House, American jobs have never looked more vulnerable. This looks exactly as I predicted in my entry: How Did We Get To Here Part IV: Years 2014 – 2034. Remember to start collecting your Made in USA artifacts – they will be very valuable in twenty years.

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