“So far everyone who has bet against America has lost"
Bill Clinton, 2012
As so often before, speculation of America's demise has been greatly exaggerated. The US economic recovery is strengthening as the decade rolls on and this time America is expanding with a number of unique engines for economic growth. These will solidify its economic recovery and may even mean we are in for another American, not Asian century.
Personally, I have never been one for the chorus of BRIC hysteria we've endured for the last decade.
The wheels in India have come firmly off the carriage and unsurprisingly last weeks imposition of draconian capital controls have sparked, rather than stopped a creeping sense of economic crisis and currency collapse. Russia will shortly be in rapid decline as coming access to cheap "fracked" energy brings its recent economic clout to a swift demise. Economic growth has stalled in Brazil and this has been reflected in nationwide protests against its rent-seeking state and high cost of living.
The wheels in India have come firmly off the carriage and unsurprisingly last weeks imposition of draconian capital controls have sparked, rather than stopped a creeping sense of economic crisis and currency collapse. Russia will shortly be in rapid decline as coming access to cheap "fracked" energy brings its recent economic clout to a swift demise. Economic growth has stalled in Brazil and this has been reflected in nationwide protests against its rent-seeking state and high cost of living.
China may be stabilising but its banking system is still a Pandora's Box of bad debt. What it contains no-one outside the upper echelons of the Chinese Communist Party knows. The recent inter-bank wobble was a PR disaster for its central bank and a sign of an immature institution struggling to control its gargantuan domestic banking sector.
What we do know is (just like before the economic crash) any recovery in China will be driven by demand for its exports from the United States.
This US demand for cheap Chinese manufacturing will also drive the Eurozone's only powerhouse economy, as China bulk orders the machinery and parts required from specialist Germany companies so it can ramp up its manufacturing machine in the Pearl River Delta. Chinese satellite economies in Australia and Africa will be keeping their fingers crossed this Chinese growth scenario materialises and their commodity booms are reignited.
Once again - as many, many times over the last century - the USA will be the motor that powers the world economy.
It has been like this since the end of the First World War. There is no evidence that this is changing any time soon. Just the opposite in fact.
The US is the only major economy that has cleaned up the toxic legacy of 2008 - unlike in Europe where zombie banks still shuffle on and meaningful reforms are non-existent. In America bad debts have been written down, banks have been recapitalised, property markets have re-balanced and companies themselves are now far leaner.
The "Shale Gale" of cheap, nearly limitless energy will substantially re-shape the US economy in a way we are still struggling to understand. It will also fundamentally alter the geo-political structure of the world as the US moves permanently away from its addiction to Middle Eastern energy.
Gas in America is currently one quarter the price in Japan. Many US companies are now moving advanced manufacturing factories back on-shore from Asia as the cost of energy collapses and years of 20% annual wage growth in China effectively prices these workers out of the market.
Most importantly the long term shortage in many key commodities which we will be experiencing by mid-century (and hardly ever acknowledge) as the population of the Earth approaches 9 billion (particularly in water and food stuffs) will by-pass America by. China can't even feed 20% of its people so is buying up whatever farmland it can in Africa.
America, on the other hand has no such problem. It is completely food self sufficient and always will be once it controls the worlds largest bread basket in the Mid-West and the Mississippi delta.
America, on the other hand has no such problem. It is completely food self sufficient and always will be once it controls the worlds largest bread basket in the Mid-West and the Mississippi delta.
Demography is destiny and America's population is young, mobile, entrepreneurial, highly educated and demographically stable. Most of Central and Eastern Europe's population structure is collapsing. Russia's is even worse and China is aging rapidly.
America may have its share of internal problems - a paralysed political system, glaring inequality, too much government debt and unpayable pension promises - but lets be frank here - most countries would love to have its problems.
Paradoxically one of America's greatest strengths is its regular period of self doubt and neurotic reflection (after the Soviet Unions' first space flight, after the Vietnam War and again after 9/11).
Ironically from here in Western Europe it is clear that these bouts of "decline paranoia" actually usher in a period of ferocious capitalist house-keeping - in a way not possible in Europe's socialist market economies.
This internal re-balancing may be ruthless and uncompromising but it has repeatedly set the stage for the next burst of American economic growth. That is what is happening right now and I see no reason for it to change this century.
Please note - this is a synopsis of a longer white paper which will be issued in Q4 2013. Contact me for a copy when it is available.
