CHINA Will be # 1 by 2017

China will return to the top, as #1 economy by 2017. On what basis will China return to the top? Not by the misleading per capita income, but by PPP adjusted for existing balance sheet and income statement basis, which better reflects the true health of an economy. I’m pleasantly surprised others mentioned PPP. Usually, the people talking economic will use GDP per capita as their best and only argument, like that covers everything. But GDP per capita leaves out many very important details, that are salient to calculating the real economic healthy of a country. Don’t confuse the size of an economy with the health of an economy. The most often quoted number is $35,000 per capita income in US. That sounds great if that is the only information you know. But once you factor in the debts of $8.4 trillion, unfunded liabilities between $45-$70 trillion, and the current population of US at about 300 million, the per capita debts is between $178,000 to $261,000 per US person, making the $35,000 income per capita look like chump change. Some people don’t know the debt numbers so they gain false solace thinking everything is great. Some other people know the debt numbers but ignore it, since truth isn’t what they want to present. USA has an illusion of wealth built largely on debt, from government, private sector, business sector, consumer credit, mortgages, etc. But Central Bankers around the world are increasingly alarmed at these obscene debt ratios, and are beginning to slow down purchases of dollars, and rebalancing their portfolio away. Beyond GDP, a PPP adjustment improves the economic forecasting. Other factors to take into account are the balance sheet and income statement items, specifically, all outstanding forms of debts, and deficits. Since China has very low debts, and very high savings (about 45% of GDP), it has attracted many in the world to do business with it, since other countries can see domestic consumption by China, as a way to buttress their own economy. Focus only on GDP per capita income, is misleading, since the health of an economy is much more than just that. China accounted for almost 25% of the world’s economy in 1800’s, and was the number one world economy back then. History will repeat, as China will return to the top this century. China is already the second largest economy in terms of PPP. If you factor in real balance sheet and income statement items with PPP, China will be the number one economy around 2017, and perhaps even sooner. Why? US is stuck with huge and increasing debts, as a result of fiscal and monetary irresponsibility by the government, and stuck with higher cost post 9/11 to cope with terrorism and homeland security. When Bush took office, the national debts were about $6 trillion. It’s now currently about $8.4 trillion, and at current deficits, it will be $9 trillion by the end of this year. This doesn’t even including the off balance sheet, as additional cost for the war on terror. The projected cost for just the unfunded liabilities from Social Security and Medicare, is estimated at $45-$70 trillion dollars (Range has to do with actuarial assumptions and whether the baby boomers will all live to, or beyond their actuarial life. This is possible since medical science is improving life expectancy). In summary: Some economist project China becoming the number one economy by 2017, not on a misleading per capita basis, but on a more accurate PPP with balance sheet and income statement basis, since GDP doesn’t pay the bills, revenues do. PPP, balance sheet, and income statement are better as it reflects revenues and expense, liabilities and assets. When you factor in these items, 2017 is not only possible, but as US debts continue to skyrocket, economist should revisit the 2017 projection, and revise it to reflect the additional cost post 9/11. ( ChinaDaily)