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News Link • Economy - International

The world has nothing to fear from the US losing power

• http://www.theguardian.com, Mark Weisbrot
The news that China will displace the US as the world's largest economy this year is big news. For economists who follow these measurements, the tectonic shift likely occurred a few years ago. But now the World Bank is making it official, so journalists and others who opine on world affairs will have to take this into account. And if they do so, they will find that this is a very big deal indeed.

What does it mean? First, the technicalities: the comparison is made on a purchasing power parity (PPP) basis, which means that it takes into account the differing prices in the two countries. So, if a dollar is worth 6.3 renminbi today on the foreign exchange market, it may be that 6.3 renminbi can buy a lot more in China than one dollar can buy in the US. The PPP comparison adjusts for that; that is why China's economy is much bigger than the measure that you have most commonly seen in the media, which simply converts China's GDP to dollars at the official exchange rate.

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