Monday, October 19, 2020

ZH — "Americans Must Wake Up To The Ugly Reality" - China Is Now The World's Largest Economy


I was aware of PPP versus NGDP/exchange rate but not that the IMF and CIA are on to it, too.

Recognizing this reality, over the past decade, the CIA and the IMF have developed a more appropriate yardstick for comparing national economies, which is called PPP (purchasing power parity).

As the IMF Report explains, PPP “eliminates differences in price levels between economies” and thus compares national economies in terms of how much each nation can buy with its own currency at the prices items sell for there. While MER answers how much Chinese would get at American prices, PPP answers how much Chinese do get at Chinese prices....
Explaining its decision to switch from MER to PPP in its annual assessment of national economies—which is available online in the CIA Factbook—the CIA noted that “GDP at the official exchange rate [MER GDP] substantially understates the actual level of China's output vis-a-vis the rest of the world.” Thus, in its view, PPP “provides the best available starting point for comparisons of economic strength and wellbeing between economies.”...
Mixing economics and finance often obscures the economic reality, economics being "really" about the production, distribution and consumption cycle. So economic comparison involves breaking this out. by deconstructing the aggregates for comparison. 

Zero Hedge
"Americans Must Wake Up To The Ugly Reality" - China Is Now The World's Largest Economy
Tyler Durden

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