Is this what the future holds?

Today the economics editor from the Guardian speculates on the long term outlook for the US economy. In his eyes, it ain't good. He opens with a bit of a fantasy:

"It's 2056. After a coup in Saudi Arabia, the new government announces it is cutting off supplies of its dwindling stock of oil to the United States. The White House responds by sending in the troops, but is forced to withdraw after Beijing says it will only continue shoring up the dollar if the military action is called off."

He goes on to defend his thinking as possible, even if the exact scenario is improbable.

He foresees US growth falling to perhaps only 1% in 2007 with a predictable material rise in unemployment. He points out that the trend of borrowing against rising house values is unsustainable.

He counters those who believe that the US can run huge trade defecits ad nauseum, based on the US dollar being the world's reserve currency, by pointing out that no currency has, or can, remain in ascendancy forever. He notes that in the period when the pound sterling was the currency of the day that the UK did not run habitually run current account deficits and yet still had to struggle when the pound fell out of favour.

He anticipates that US dollar will lose it's status before 2050, perhaps well before and that when the creditor's come knocking it will be the renminbi or the rupee that will have taken its place.

What will America, and indeed the rest of the western world, have to offer the world then. The manufacturing base will have been completely eroded by then. Will Chinese concerns begin building factories in Phoenix or Indian banks set up call centres in Birmingham?

I'm not saying it will happen but we need to consider the possiblity that it could.

(Hmm, Microsoft's spell checker doesn't recognise renminbi. That'll change for sure!)