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Dollar hegemony for another century
Let me stick my neck out.
The dollar will still be the world’s dominant reserve currency in 2030, sharing a degree of leadership in uneasy condominium with the Chinese yuan. It will then regain much of its hegemonic status as the 21st century unfolds. It may indeed end the century even stronger than it was at the start.
The aging crisis in Asia — and indeed the outright demographic implosion in Japan and China, not to mention China’s water crisis — will soon be obvious to everybody. Talk of Oriental supremacy will start to sound overblown at first, and then preposterous.
Japan is about to go bankrupt. It is on the cusp of a fiscal crisis that will change perceptions of Asia dramatically. The IMF says gross public debt will reach 218pc of GDP this year. This is compounding very fast. It will be 246pc in 2014.
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Charles Dumas from Lombard Street Research says Washington must be chuckling as the weak dollar gives it time to rebuild America’s industrial core. The “inflationistas” — ie, those convinced that the dollar is being debauched despite the fact that core inflation in the US is falling and that the M3 money supply is contracting — are playing straight into the hands of the United States.
Nobel Laureate Gary Becker told me a few weeks ago that America’ spectacular gains in productivity – growing at a trend rate of 2.25pc to 2.5pc — is laying the foundation for a much stronger US recovery in the long-term than most people seem to realize. Compare that with 0pc to 1pc for the eurozone. In Italy it is negative.
The UN expects America to add roughly 100m people by 2050, keeping its age balance in relatively good shape through a mix of immigration and a healthy fertility rate — now 2.12 live births per woman, still above replacement level. This compares to: Taiwan (1.13), Korea (1.2), Japan (1.22), Ukraine (1.25), Poland (1.27), Spain (1.3), Italy (1.3), Russia (1.4), Germany (1.41), China (1.77), Britain (1.96), and France (1.98). Some of this data may be slightly out of date, but the picture remains valid.
Professor Becker said a collapsing birth rate is extremely hard to reverse, and the cultural effects are insidious. Old societies are status quo. They are slow to embrace new technologies. Young minds are the source of hi-tech invention.
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