On the Demise of the US

Its seems to be trendy to say the US is on a steady decline and a superpower for only a while longer. China is sure to be kicking US ass shortly (economically at least), they say.

Reason's given are based on the unsustainable US government deficit (40% of GDP), the current account deficit, social security crisis, rising military spending, etc.

These proclamations are not new. I asked Peter Bakstansky – Senior Vice President (retired), Fed Reserve of NY the question (week on wall street): does the fed worry about the current account deficit. He said yes, its discussed but its never been a real cause of concern. On the current account deficit he said, "they said it (the current account deficit) would be unsustainable at 5% (of GDP) that came and went, then they said 7% and that too came and went".

The current economic crisis has given second wind to these theories. Seventy years ago, during the great depression, I bet these theorists might also have found lots to clamor about. To such people, the end of the US should seem eminent at every recession.

My position is simple. We simply do not have sufficient data at this point to say either way.

To take an analogy from picking stocks-- analysts and those trained in the art know how hard is it to call a stock. Where will GE trade a year from now? Most would shy away from making a call on GE given its complexity and diverse business. Yet, when it comes to the $40 trillion firm called the USofA everyone seems to know and is ready to call which way the stock is going.