It is inevitable that the US will default when the debt ceiling...

It is inevitable that the US will default when the debt ceiling deadline on August 2 comes around, David Murrin, chief investment officer at Emergent Asset Management told CNBC.


"It's inevitable that the US will default - it's essentially an empire which is overextended and in decline - and that its financial system will go with it.

The question is: does it default when it is forced to by the outside world, probably the Chinese, or does it take the option to default on its own terms in such a way that it may have a strategic advantage," he said.

Republicans and Democrats are currently locked in a debate on how to cut the US budget deficit, and on whether the $14.3 trillion debt ceiling should be raised. Both parties need to come to a consensus by August 2nd 2011, otherwise the country will be in a state of technical default.

In his book 'Breaking the Code of History', Murrin argues that the balance of power has shifted away from the West, with America as the superpower, towards the East, led by China.

He argues that America cannot afford to compete with the rise of Eastern powers.

"It's very simple, its (America's) empire system, its financial system is in decline, we've seen very little growth for over a decade apart from financial engineering and leveraging which ultimately caused the debt crisis of 2008," he said.

He argues that emerging markets have a distinct advantage over more mature economies through demographics, working dynamics and the ability to create fundamental economic growth. This imbalance inevitably pushes developed markets towards default.

"The only similar example is Britain. It was once an empire and when it lost its power over Suez (The Suez Canal crisis of 1956) it had a large amount of loans outstanding to the Empire, and America owned most of that, and that was the power America had over Britain and it ended the pound, but their values were very similar in terms of global geo-politics and the world didn't really change that much.

"For America it is the last of the Christian, Western empires. Who do you pass your values to as China grows and challenges? No one. So you are forced to continue to spend and one day you cannot afford it," he added.

"If you look at how China is seeking to control debt in Europe and marginal debt in the US, which is strategic ownership, the position becomes more precarious for America. If I was an American in the White House I'd feel safe militarily but fiscally I am very vulnerable," he said.

"China is expanding its navy at a staggering rate, there is a whole naval arms race that is happening at a staggering rate and that will have ramifications within years.

It is a military dictatorship - look at the PLA (People's Liberation Army) which really has control and it is very, very aggressive.

"We (in Europe) have tried to regain empire through Europe. It was a forced regionalization process which was bound to fail. The US' options are pretty dire and this is a real disaster but you can mitigate it.

The real disaster would be to not recognise where America is, to continue to be unconscious to the collapse of its powerbase and that only accelerates the loss of power and that creates a bigger vacuum which China moves into and leads to potential conflict."

He said it was simple for investors unsure of the new world order and where to invest. "You probably shouldn't own dollar-denominated assets," he added.

http://www.cnbc.com/id/43721270