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China vs. U.S.A.

November 21, 2012 – 6:09 pm

For a number of years, everyone has been worried about China and its march in overcoming America as a super power. That worry is much to do about nothing. Even if you assume China will become a larger economy than the U.S. that should cause little concern. They have a much larger population, almost four times as many people, so the actual size of their economy is spread over many more income producers. The disparity between income per person in the U.S and China is huge; $5,000 versus $35,000 is a rough estimate. It will take a number of decades, if ever, for that to reverse.

However, that is assuming China will still grow at a 10% pace per year as it has over the past decade. This is highly unlikely; in fact, the new normal is about 7 to 8% and will fall as they grow. The U.S. growth rate is 2 to 3%.

Over spending and corruption in China will eventually cause a severe recession. Japan fell in a deflationary spiral starting in 1989. They are still trying to escape from it, while here in the U.S, our overspending could easily cause high inflation. China may not have deflation. Maybe it will be inflation, but they will not escape these problems, something will interrupt their expansionary march.

We need to focus on our own problems of overspending and kick start our economy. The rest of the world can take care of its own economic house and isn’t it a good thing that economies expand. After all, we will benefit from their rising salaries and a larger middle class that will want our valued added manufacturing, energy exports and service sector expertise, and that not even counting our dominance in technology.

Good Trading
Steve Peasley

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