China Not To Overtake US Economy Until 2032 January 3, 2018 by Gary Halbert of Halbert Weal Management 1. Report: China s Economy Will Not Overtake US Until 2032 2. Cheaper Energy & Technology to Boost Asia-Pacific Region 3. Trickery: Chained CPI Hidden in New GOP Tax Reform Bill Overview Let me begin today s letter by wishing everyone a Happy New Year! Wiout your continued support, is E-Letter and Halbert Weal Management would not exist. Thankfully, our assets under management have continued to grow in recent years. Our stable of investment strategies at HWM has never been more diversified an it is today. In e last few years, we have significantly expanded e scope of e investments we recommend, including several successful strategies at do not involve stocks or bonds. If you are one of ose at are concerned about e stock markets record high levels, you should definitely consider ese alternative investments. Also, as you will learn shortly, we are about to introduce ree very successful strategies at deal in real estate, a first for us. The point is, we continue to expand our roster of investment strategies to meet e needs of sophisticated investors in ese increasingly complex markets -- including programs at have e potential to do well in rising or falling markets. Given at, I would suggest at you make a New Year s Resolution to at least consider some of e alternative strategies we recommend at Halbert Weal Management just ahead. My Investment Consultants do not work on commission, so ere is never any pressure to invest. Barring any major negative surprises, 2018 looks to be a good year for e US economy, for jobs, for wages and for new innovation. I will get more specific on ese topics in e next few weeks. Today, we need to revisit China and a new report which predicts how soon e Middle Kingdom will overtake e US as e world s largest economy. Rounding out today s discussion, I ll explain chained CPI which replaced traditional CPI in e new GOP tax reform bill. Wheer you agree or disagree wi is sneaky change in how inflation is Page 1, 2018 Advisor Perspectives, Inc. All rights reserved.
calculated, you need to know about it. I ll explain as we go along today. Report: China s Economy Will Not Overtake US Until 2032 In my December 5 E-Letter last mon, I debunked e mainstream media s predictions at China will surpass e US as e world s largest economy in e near future. I went out on a limb to predict at China s economy may already be peaking, and at it will be quite a long time, if ever, before China challenges e US as e world s largest economy. I pointed out at while China s population is 1.4 billion versus our 323 million, its annual GDP is only $11.2 trillion versus our $18.6 trillion. I also pointed out China claims at its economy continues to grow at a 6% annual rate are almost certainly false, and at its real grow rate is widely believed to be only 2-3% in recent years. My point was at China s economy is not going to surpass e US economy for a long time. As a follow-up, just last week one of e most respected global forecasting groups predicted at China will not overtake e US as e world s largest economy until at least 2032. That s almost 15 years from now. I feel vindicated in my view at China is not about to challenge e US as e world s strongest economy anytime soon. Today we will take a look at e latest report from London s Centre for Economics and Business Research ( CEBR ), which is one of e world s leading forecasting groups on global business and demographic trends. The CEBR predicted last week at China will not match e US as e world s largest economy until 2030, at e earliest, and will not surpass e US as e world s #1 economy until 2032 if current economic and demographic trends continue. Over at same period, e CEBR predicts at India will rise from e 7largest economy in 2017 to e 3 rd largest by 2032, us surpassing France and e U.K. as you can see below. Page 2, 2018 Advisor Perspectives, Inc. All rights reserved.
The CEBR report also said Russia is poised to drop from 11 place to 17 place by 2032 due to its excessive reliance on oil exports. The report downplays recent developments in Russia s manufacturing and high-tech sectors, stressing at declining global energy prices will be e main reason for e projected deterioration. Cheaper Energy & Technology Prices to Boost Asia-Pacific Region According to CEBR s latest annual World Economic League report out last week, cheaper [inflationadjusted] energy and technology prices will drive economic expansion in e countries of e Asia- Pacific region in e coming decade. These factors will also provide an economic boost to Indonesia and Sou Korea, and bo will expand into e world s 10 and 8 largest economies, respectively, by 2032. This comes amidst e rise of high-tech manufacturing and e financial services sectors in Asia, making e region s urban areas increasingly prominent economically. These developments will make Asian economies larger in US dollar terms; however, e future of e dollar remains uncertain amidst e pivot to economic nationalism in e US. All e economies on e CEBR list are measured in dollar terms, as our currency remains e main means of international settlements and erefore, a universal measure of consumer purchasing power and a country s overall economic well-being. The CEBR notes at by 2032, five of e 10 largest economies will be in Asia, while European Page 3, 2018 Advisor Perspectives, Inc. All rights reserved.
economies are falling down e ranking and e US loses its top spot. They conclude at technology and urbanization will be e most important factors transforming e world economy over e next 15 years. Caveat: Economic studies such as e one cited above which span 10-15 years must be viewed wi a grain of salt, so to speak. They are interesting in terms of spotting trends, but ere are just too many variables at can change over such an extended period, especially wi technology advancing so quickly. Anoer reason at such studies must be viewed wi some skepticism is at many, including e CEBR report cited above, do not factor in a recession in e period shown. I suspect at most, if not all, of my readers would agree we ll have at least one recession between now and 2032. Finally, as I wrote in detail on December 5, ere is growing evidence at China s juggernaut economy may be in e process of peaking, so ere s no guarantee at it will eclipse e US as e world s largest economy by 2032. Trickery: Chained CPI Hidden in New GOP Tax Reform Bill Most Americans, I suspect, are not familiar wi e term chained CPI which is an alternative to e traditional Consumer Price Index (CPI). The difference is at chained CPI calculates inflation as growing more slowly. If applied to government benefits or Social Security, as some have suggested over e years, chained CPI would mean reduced grow in benefits payments. Why do I bring is up today? The recent Republican tax reform plan which President Trump signed into law just before Christmas relies on chained CPI to measure inflation. While e tax reform bill and its chained CPI don t apply to Social Security, is is a significant milestone as it could affect oer benefits programs before too long. Inflation indexing is critical to your wallet. Because prices go up year over year, e government compensates by raising federal benefits to match changes in e cost of living. The government also indexes tax brackets annually, in line wi inflation. If it didn t, e purchasing power of your benefits would erode over time, and because inflation corresponds to wage increases, you would hit higher tax brackets faster. Over e years, some experts decided at traditional CPI over-measures inflation. They came up wi chained CPI, which adds e concept of substitution. For example, if e price of beef spikes, a shopper may choose to purchase lower-cost chicken instead. That individual s cost of living didn t increase, technically speaking; ey just shifted purchases to fit wiin a budget. If you do e ma on all ese substitutions, you get a chained CPI at s typically between 0.25% and 0.35% lower annually an traditional CPI. Proponents of chained CPI say it s a way to help balance e federal budget in at entitlement payments would not rise as fast as wi traditional CPI. That might be true but it assumes e Page 4, 2018 Advisor Perspectives, Inc. All rights reserved.
government wouldn t spend e savings on oer ings and at s a big assumption! President Obama proposed switching to chained CPI for Social Security cost-of-living adjustments back in 2013 during e ill-fated debt ceiling negotiations, but e Democratic opposition forced him to give it up. In any event, chained CPI now immediately applies to e tax code. According to e Joint Committee on Taxation, e new chained CPI will increase taxes by almost $130 billion over e next 10 years (oer estimates are even higher). The Tax Policy Center estimates chained CPI will cost taxpayers anoer $500 billion in e decade after at. I m all for cutting government spending, but you don t do it by sneaking a new inflation measure into a tax reform bill! I just want to make sure my clients and readers are aware of is change. Happy New Year, Gary D. Halbert Forecasts & Trends E-Letter is published by Halbert Weal Management, Inc. Gary D. Halbert is e president and CEO of Halbert Weal Management, Inc. and is e editor of is publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect e judgement of Gary D. Halbert (or anoer named auor) and may change at any time wiout written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check wi eir investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Weal Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed wi proper credit. However, republishing (written or electronically) in its entirety or rough e use of extensive quotes is prohibited wiout prior written consent. Halbert Weal Management Page 5, 2018 Advisor Perspectives, Inc. All rights reserved.