(Image Source: Politically Illustrated)
BY EMOKE BEBIAK
ANCHOR ALEX ROZIER
You're watching multisource business video news analysis from Newsy.
Mark your calendar for 2016. That’s when the International Monetary Fund expects America to surrender its leading position as world’s largest economy to China.
It was Marketwatch’s Brett Arends who discovered the grim prediction buried deep in an IMF report.
“When you talk to a lot of Wall Street economists and talking heads, they will tell you, ‘Oh, it’s decades away’ and all that stuff. Nonsense. It is five years’ time. 2016. That is the date put out by the IMF.”
In the original article, Arends warns...
“Most people aren’t prepared for this. They aren’t even aware it’s that close. … The most bearish will put the figure in the mid-2020s. But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.”
Arends explains using exchange rates is not a reliable basis for predictions, because they change easily and governments can manipulate them. Instead, the IMF compared the two country’s “purchasing power parities” or PPPs, which measures how much someone’s income can buy in a given economy.
Looking at the current trends, IMF concludes China’s rising PPP will top that of the US.
But a blogger for The Financial Times points out IMF has put out conflicting reports based on what numbers they analyze.
“Statistics are notoriously slippery things… Measured using PPP, China will overtake the US ... by 2016... Measured in US dollars at current prices, the US retains a clear lead.”
The International Business Times denies the legitimacy of the recent report saying...
“The IMF and World Bank’s projections ... shouldn’t be trusted at all. Economists at institutions like the IMF and World Bank have little imagination and assume that current conditions will continue indefinitely. Their ‘projections’ should be more aptly named ‘adjusted extrapolations’.”
CNN asks what slipping to the second place would mean for the US. Is this only about bragging rights?
CNN’s Zain Verjee explains it would have serious implications for everyday Americans.
“For ordinary people though, Carol, one of the issues is going to be jobs. You know, if the US economy grows around 2 percent, less people are going to want to invest their money in the US. They’re going to where the growth is.”
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