October 3, 2014

How many times have you heard that China is on its way to surpassing the United States as the main driver of world economic growth? This week’s guest says not so fast – growth dynamics are changing and the widely forecast new world order is returning to the old world order. Top rated economist, Nancy Lazar explains why the U.S. has resumed its role as the driver of global economic growth and China is lagging.

CONSUELO MACK: This week on WealthTrack, a top-rated economist who is turning conventional economic wisdom on its head – Cornerstone Macro’s Nancy Lazar says the U.S. is back as the driver of global growth and China’s influence is waning… Financial Thought Leader Nancy Lazar is next on Consuelo Mack WealthTrack.

Hello and welcome to this edition of WealthTrack, I’m Consuelo Mack. How many times have you heard and have we reported that China is on its way to surpassing the United States as the main driver of world economic growth? China’s rise seemed to be unavoidable and inexorable. It is the world’s most populous nation with an estimated 1.3 billion people compared to about 320 million in the U.S.

Its coveted middle class is bigger than our entire population…. although its economy has slowed to an enviable estimated 7% plus growth this year, the U.S. economy, still recovering from a serious recession is expanding only at 3%, if that. And in size, China’s economy is second only to the U.S. having surpassed Japan as number two in 2010.

But this week’s guest says not so fast. Growth dynamics are changing and this widely forecast new world order is returning to the old world order with the U.S. rising and China waning. She is Nancy Lazar, a Founding Partner of macro research firm, Cornerstone Macro which she and her partners formed last year. Lazar heads up its economic research team. She has been ranked one of the street’s top economists by Institutional Investor magazine for more than a decade, including being ranked number 2 for the past four years. She is second only to her former business partner, Ed Hyman with whom she founded independent research firm ISI Group in 1991.

Lazar and her team believe that for the first time in more than 20 years the U.S. will be the driver of world economic growth. They shared this chart with WealthTrack showing that for the first time since 2006 Nominal GDP in the U.S., that’s including inflation, may increase more than China’s Nominal GDP next year, by over $170 billion and they say there is much more to this story.

I asked Lazar to give us the big picture of why the U.S. is resuming its role as the dominant economic power.

NANCY LAZAR: Well, the two big powers of the global economy have been the U.S. and China, and up until this year China had been that driver of global growth, but over the past several years China has built up a tremendous amount of excesses, investment credit, corruption, pollution but particularly the investment and the credit, and they are now at the very early stages of unwinding those bubbles, if I can call them that, and as a result growth must slow. The only way they can unwind those bubbles is for growth to slow, and there are plenty of signs indeed that is happening. In contrast in the United States, we’ve dealt with a lot of our excesses, our credit bubble for example burst hard as we now know, in particular taking housing down, but today we have long-term drivers of growth in the United States, making it easier for a sustained period of growth. I’m not suggesting that U.S. GDP growth will be extremely robust, five or six percent. We’re using about three and a half percent GDP, but when you go through the math and you look at how much the U.S. is going to grow this year and how much China is going to grow this year, unbalanced, yes. The U.S. is going to grow faster than China in dollar amounts here in 2014.

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