Take Stock of America

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Take Stock of America

Investment Strategy Group

Goldman Sachs Private Wealth Management

January 2010

It seems that a day doesn’t go by without some commentary about the rise of the East, particularly China, and the fall of the West, particularly the United States of America. Many market observers are quick to point out that the financial crisis and deep recession of 2008-09 have dealt a fatal blow to US hegemony. They note that the US budget deficit will burden the US economy and that the descent of the US will be expedited by the unwillingness of the politicians in Washington to make the tough decisions to cut government spending. Thus, they say, the US’s dominating influence ends, and that of China begins. China’s centrally managed governing process will be effective in maintaining high growth rates, the argument goes, which will cause China to become the largest world economy sometime in the next 20 or so years.

China may well experience impressive growth over the next several decades – in fact, we expect it to. But that growth, in our opinion, will not come at the expense of the US. Our view is based on two premises. The first states that the US economy will recover along the path of past recoveries. The second premise is driven by a rigorous assessment of the various factors that, in combination, have accounted for the unique success and dominance of the US over the last century. A careful review of the data has led us to conclude that these factors are all intact; and in fact, no one country is even close to approaching the US on this range of factors.

So, again, this crisis has not dealt a fatal blow to US hegemony. It is worth remembering Alexis de Tocqueville’s insight from almost 200 years ago. His words still ring true: The US has ample economic wherewithal, political might and prosperity factors to repair her current faults.

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The Investment Strategy Group is a part of the Investment Management Division of Goldman Sachs and is not a part of the Goldman Sachs Global Investment Research (GIR) Department. The views and opinions expressed by the Investment Strategy Group may differ from the views and opinions expressed by GIR or other departments or divisions of Goldman Sachs.