Despite Davos, Count Out the USA

02/02/2007 12:00 am EST

Focus:

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

Nicholas Vardy, editor of the Global Guru, dismisses fashionable sentiments from the World Economic Forum in Davos that the US economy is lagging. Despite more rapid growth in China and India, the US has some fundamental advantages, he writes...

"The annual meeting of the World Economic Forum at Davos, Switzerland, is where the world's top business leaders, presidents, and prime ministers hobnob and swap views on the state of the world.

"This year's theme is "The Shifting Power Equation." The argument is now a familiar one: Power is draining away from the US to multiple centers around the world as countries establish themselves as players on the world economic stage.

"At the height of the dotcom boom, the world sat in awe of the US economy in the midst of the longest expansion in history, full employment and low inflation. Sessions were dominated by Americans--like Microsoft's Bill Gates and AOL's Steve Case. That all changed with the collapse of NASDAQ (in 2000). And then, 9/11 and the Iraq War were the icing on the cake.

"The biggest news has been that developing countries grew at 7% (annually), about twice the rate of developed countries. Last year they accounted for just about half of global economic output--up from 39% in 1990. China's GDP has grown at or close to 10% (a year) since 2003, and India's at 8%. But the US, Europe, and Japan today still account for 80% of world output--with only 15% of the world's population.

"That won't change overnight. India's economy is still less than half the size of California, and 250 million of its citizens are living on less than a dollar a day. And China's $1-trillion plus stash of currency reserves barely equals the levels of bad debt in its banks- itself an astonishing 40% of GDP.

"Certainly, the Bush administration's abrupt style and the Iraq war have tarnished US luster abroad. And many in the world--particularly in Europe--can barely conceal their glee. The "Shifting Power Equation" theme at Davos plays into long-held anti-American sentiments.

"But here's the reality. The US economy generated as much economic wealth in 36 months between 2003 and 2006 as China did in its entire history. American academics won all five Nobel Prizes in sciences in 2006 for the first time in many years. And a US economic "slowdown" is faster than any European "expansion," while the US economy boasts full employment and low inflation. A more balanced global growth pattern is a good thing. But don't count out the US economy just yet."

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