IMF: THE AGE OF AMERICA OVER IN 2016

Washington, April 28- The prediction this month of a 2016 reckoning for the U.S. didn't come from Glenn Beck or other talking heads ramping up network ratings with apocalypse talk. Instead, it came from a forecast by the International Monetary Fund (IMF) of a total Chinese economic eclipse.

In a report published to its website the IMF delivered what The Wall Street Journal calls a "bombshell" in predicting that 2016 will be the end to "The Age of America." Plan accordingly.

The IMF, the leading international monetary organization, sees China overthrowing the U.S. as the greatest economy in the world. The ostensible changing tide of global economic power set to put China first is coming through the pipeline in just five years.

Most are unaware that this shift is afoot at all, while those acknowledging it have generally used current exchange rates to compared gross domestic products of the two countries, concluding the change in economic authority is decades away.

"Nonsense," says MarketWatch's Brett Arends in response to these conservative time frames. Because the basis of their comparisons takes for granted that exchange rates fluctuate rapidly, especially with China's artificial undervaluation of its currency, those predictions are inaccurate.

Rather than focusing solely on a comparison through exchange rates, the IMF report considers the "purchasing power parities" -a comparison of what people earn and spend in their respective domestic economy in China versus what people earn and spend in the U.S.

The PPP comparison indicates that although the U.S. economy will grow from $15.2 trillion to $18.8 trillion in 2016, because the Chinese economy will expand from its current $11.2 trillion to $19 trillion at the same time, the U.S. share of global output will actually decrease to its lowest in modern times at 17.7 percent. China, on the other hand, will gain a bigger share of world output at 18 percent, thus surpassing the U.S. economy in 2016. This is remarkable considering just a decade ago the U.S. economy tripled China's.

"The rise of China, and the relative decline of America, is the biggest story of our time," wrote Arends pointing to the fact that of course all forecasts are only that. No measurement is flawless and just like a weather report, it's bound to change. But a storm is a storm, and even if China hits several snags on the way, it's still headed to the top, and that "outcome is scarcely in doubt," according to Arends.

The prediction is certainly a negative for the status of the dollar. Highlighting the urgency for the U.S. to keep its sterling credit rating, it also lends a new angle to the debt and deficit debates.

It's hard to imagine the future of securities in a world where the U.S. Treasury market can no longer use as a crutch its special license as the world's top economic power to cushion liability. It continues to operate on the assumption that it will forever be the monetary benchmark. What will it do in the dawning Age of China?

It would be wise to weight the presidential vote carefully in 2012. If the IMF is right, that vote will decide the last leader in "The Age of America”.

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