Point of Convergence
Globalization as an economic term that is often bandied about by the likes of Tim Geithner, Ben Bernanke and highbrow Keynesian macro-economists when trying to explain why the US economy is still stuck in never-never land and doesn’t look like things will improve very soon.
Globalization refers to the shift of economic power and wealth away from the United States and back to the rest of the world.
We all know on the world economic stage that the United States is no longer the big dog on the block jealously hording the fire hydrant all to itself. The rest of the world is catching up with us.
Just how fast are we falling off our lofty pedestal? How long will the United States remain the leading world economic power? How long can we still bully around the rest of the planet?
The graph above gives the intriguing and somewhat surprising answer to those questions!
It was drawn from economic data collected by the International Monetary Fund (IMF) since 1980 and projected forward through 2016.
What is the IMF?
The IMF basically serves a similar function for the world as The Fed does for the United States. It collects data and oversees the global financial systems and takes corrective actions, such as making loans, to keep the global economy stable.
It has been a big player making loans in the current European Debt Crisis. As of August 2010 its largest debts outstanding were to Romania ($13.9 billion), Ukraine ($12.66 billion), Hungary($11.7 billion) and Greece ($30 billion).
The IMF was formed in 1944 after WWII to help in reconstruction of the world’s devastated economies. It has 187 member countries and each member pledges a certain amount to its loan fund. As of this writing the U.S. share of about $26 billion U.S. dollars is just under 18% of the total IMF member loan pledges.
Now Back to Our Regularly Scheduled Graph!
The four wavy lines plot the four largest economies in the world over time – The European Union, The United States, China and Japan… in that order.
The vertical axis plots the percentage of the total world GDP that each of those economies control. The horizontal axis is time.
As we know and as you can plainly see the United States controlled about 25% of the worlds economic activity through the 1980s but has been on the decline ever since.
What Does the Graph Tell Us?
Lookie what we have here… The European Union, China and the United States’s shares of the world GDP converges at about 15.5% each in late 2016! At that time they will all own equal shares of the world’s total economic activity (GDP).
Japan’s overstressed economy with its huge debt-to-GDP ratio continues to fall off to become a lesser and lesser economic power in the world.
By late 2016 the EU, China and the U.S. combined will control 52.5% of the world’s total economic activity. After WWII back in the 1950s the U.S. controlled about 55% of the world’s GDP all by itself.
In 2016, China replaces the United States as the world’s leading economic power.
Its intriguing to think about what will happen when all three economies reach their point of convergence and are all on a level playing field. But, really, it doesn’t matter.
The EU and the U.S. are in world economic decline and have been for decades as you can see in the graph. Given current and future prospects that trend is sure to continue out past 2020.
China’s economy, on the other hand, has been steadily accelerating since 1980. China’s star is not only rising but skyrocketing upward like… welll… like a Chinese Thunder Dragon fireworks!
It looks like by the early 2020s the Chinese will become the big dog on the block and you won’t get near their fire hydrant or their bone either!
USA, get ready to take a dose of your own medicine.
Official recommendation: Learn Chinese… NOW!