How is China going to be the replacement? In many ways they are more vulnerable than the US or EU to a global economic slowdown:
First their economy is export based. Domestic consumption is not enough to maintain much less increase economic growth. Any slowdown in economic activity in the US or EU impacts China. (20% of China?s GDP is reliant on trade with the US while 11%of US GDP is based on trade with China.
Second the Chinese banking system is probably more shaky than the EU?s or US?s with at least half other I loans under performing or non-performing. These are not based on real estate but business loans made to inefficient state owned business or poor performing private ones. The reasons for these loans was t maintain economic growth to fight high unemployment (around 15% by private estimates).
Foreign Direct Investment in China is falling and they are burning through their cash reserves to subsidize energy prices for the masses (and they still have energy shortages).
Russia isn?t next because its economy is essentially based on one commodity energy (oil/natural gas). It production of that commodity is falling as is the price the price for that commodity due to the slowdown. Russia still has undeveloped reserves but heir locations, Siberia and the Arctic make them costly to develop > IF the price per barrel is below a certain amount (I think in their case less than $100 per barrel it is not economical to develop most to for those reserves.
Japan isn?t next because they have had about 5 recessions in their past 15 years and have a National debt at almost 200% of their GDP. They rank second just behind Zimbabwe in terms of debt as percentage their GDP the US currently ranks 26th. France and Germany and also have higher debts than the US as a percentage of their GDP. Japan built up this massive debt by trying to spend their way out of recessions with massive public works projects. Their banks too are carrying a lot of bad paper with many loans using stocks as collateral, as stock prices fall so do the value of the collateral.
This bring us back to the US since it is obvious the EU is not going to be able to mount a unified response to its various, sometimes competing national interests to the crisis.
First I believe that all economic is cyclic. What goes up comes back down and then goes back up. The US has an approx. 14 trillion dollar economy of which the current mortgage/financial crisis is really a small part though has a wide impact. It is also the first a best position to offer a national response the crisis though some maintains that such government intervention was not really needed.
Second, it should be noted that the US dollar is now climbing on the exchange rates indication it is the currency off refuge, not the Euro, the Yuan or the Yen. Also foreign investment in the US is now increasing not decreasing. This means people are looking for a safe place to put their money and they view the US as the place to do it.
I will predict that at the end of this economic downturn the US will still be the world?s economic power.
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