The Bankwatch

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Some perspective on GDP, and America’s ability to “come back”

This is much talk these days of the decline of the United States and a fundamental reshaping of relative world economic clout.

It is worthwhile to reflect on the current size of economies before such claims are made. This rambling piece from Richard Florida that I thought was going to deal with the decline of America, actually ends up making the case that the impacts on US cities will be significant.  Of that there is little doubt, but the example of Detroit may not be the best to make the point (the Phoenix example is a better one).

Detroit has had and survived at least four sets of signifcant rioting with manufacturing issues at the core, amplified by race issues.

This from the Pittsburgh News in Oct 1933 during the depression.

screenshot-pittsburgh-post-gazette-google-news-archive-search-mozilla-firefox

Indeed it is worth clicking through and reading of this particular event.

“A factory manager at one plant fired several shots as the mob approached the place, but said he aimed over the heads of the rioters”

What can I say.  The history of the US is all about survival and moving ahead despite setbacks – but I digress.  America cannot be “mis’underestimated.

Here is the GDP ranking of the world.  Bear in mind that 2% shifts in GDP are considered gigantic.  If the US economy reduced by an impossible 50% it would remain 50% larger than the next largest.  [I am aware that there has recently been reported a shift in the top 4 rankings, but the point I am making does not change]

Gross domestic product 2007 | World Bank

Ranking Economy US dollars [000’s]
1 United States 13,811,200
2 Japan                 4,376,705
3 Germany           3,297,233
4 China                 3,280,053
5 UK                      2,727,806
6 France                2,562,288
7 Italy                   2,107,481
8 Spain                 1,429,226
9 Canada              1,326,376
10 Brazil              1,314,170

There will be serious impacts, the economies of the world will be dramatically different after this event we are all part of, but i maintain the ability of the US to come back is unfathomable compared to the rest of the world. The nearest hope would be the EU if only by size, but while they try to re-architect using 20th century thinking, the US has little to fear.

I do worry about the debt levels in the world [The Great Unwinding], reflected in the banking system.  The pending impact of revaluation of that debt to accomodate new asset values will be enormous, and not seen since some of the events in the 17th and 18th centuries.   When the dust settles on that score there will be impacts on countries, exchange rates, and inflation/ deflation within those countries – impacts I am not qualified to predict, but they will come.

Written by Colin Henderson

February 15, 2009 at 16:41

5 Responses

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  1. Do you think the GDP per capita is important? Because there are a good number of countries above the US in that.

    djcnor

    February 15, 2009 at 16:47

  2. @djcnor … per capita is certainly important for productivity discussions. Whats your thought on the importance relative to which countries dominate world trade?

    Colin

    February 15, 2009 at 19:24

  3. Colin,

    I lived in Japan during the the lost decade and was working there during the nadir as well as the climb out, and into positive GDP growth.

    One of my take aways from my time there was that GDP is best thought of as a pipe. A massive pipe can be contracting, but the volume of flow is so high that one can still do VERY well.

    I’m back to working on the family business these days, (based in the SF Bay area) and business is OK…almost good. My sense is that there will be a bunch of companies that pull through this downturn like champs. What they won’t do, however is rocket up like so many companies did when there was easy access to cheap capital.

    Which is perhaps a long way of saying that the pipe is big enough for good companies to pull us out of our decline, but it will take some time. Which is the point I think you were making about America.

    jason knight

    February 15, 2009 at 22:59

  4. Well, above the US in GDP per capital are Luxembourg, Norway, Qatar, Iceland, Ireland, Switzerland, Denmark, sweden, Finland, Netherlands, and the United Kindgom. Of course, those numbers come from before the crash.

    The presence of Iceland on that list demonstrates that a high GDP per capita doesn’t necessarily mean you’ll make it through. And it’s interesting to consider what Iceland is considering as a cure, joining the EU.

    For me, a very significant difference between the US and at least most of the countries on this list is the comparative much better quality of the social net in the other countries. Because, no matter how bad things get, their people will not not go without shelter, food, healthcare, and access to higher education. Therefore, their people will be in much better shape to get back to work when things get better. Have you considered how many companies are now getting credit reports on prospective employees? All those folks losing their homes in the US will now find it much harder to find jobs should they lose the one they have, if they haven’t already.

    Note that Japan is one of those countries that has that kind of support system, as is Norway, which suffered a deep recession with very similar causes back in 1987 and quickly reovered.

    djcnor

    February 16, 2009 at 04:12

  5. thanks for those comments and reflections on experiences. I am firmly on the side of this getting worse before it gets better – was only suggesting that the American economy will continue to be relatively large in the world. I also have belief in the US people and economy to survive. Glad to hear your SF business is doing well.

    I note just today that Japan experienced a quarterly drop equivalent to 13% per annum. Those are incredible numbers so we can expect consequential shifts to occur.

    Colin

    February 16, 2009 at 12:32


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