China vs America

According to Bloomberg.com, China's stock market (currently valued at $3.2 trillion) may become the worlds largest in just 3 years, driven by it's nations 1.4 billion people putting more of their money in equities. Right now, the US market is the worlds largest, valued at $11.2 trillion. The two market, however, are headed in complete opposite directions.

The US market's value peaked in July 2007 at a value of almost $20 trillion, but has declined 41% during the financial crisis. Even with the massive stimulus efforts, the S&P 500 has only managed to gain 4.1% this year and GDP has contracted by 5.5% in the first quarter and an estimated 1.8% in the second quarter. Could this sluggish growth be because the Reinvestment and Recovery act had too many tax cuts and was too small overall, as Paul Krugman predicted and tried to warn us about? Or could it be because we diluted the "Buy American" provision so we ended up stimulating China's economy instead of ours?

Contrast that with how China's market is reacting to it's countries own 4 trillion-yuan ($586 billion) stimulus package, which included a "Buy China" provision that required all stimulus spending to go to only Chinese-owned and operated businesses, and you'll see whose approach is more successful: the Shanghai Composite Index is up 75% this year and their economy grew by 7.9% in the second quarter.

The most interesting question, in my opinion, is what will happen to the US-China relationship once their economy eclipses ours AND they are the majority owner of our national debt.