Monday, 30 August 2010


-- Written by an Indian Economist

The Japanese save a lot. They do not spend much. Also Japan exports far more than it imports. Has an annual trade surplus of over $100 billions. Yet the Japanese economy is considered weak, even collapsing.
Americans spend, save little. Also US imports more than it exports. Has
an annual trade deficit of over $400 billion. Yet, the American economy is
considered strong and trusted to get stronger.

But where from do Americans get money to spend?
They borrow from Japan , China and even India . Virtually others save for
the US to spend. Global savings are mostly invested in US, in dollars.
India itself keeps its foreign currency assets of over $50 billions in US
securities. China has sunk over $160 billion in US securities. Japan 's
stakes in US securities is in trillions.

The US has taken over $5 trillion from the world. So, as the world
saves for the US , Americans spend freely. Today, to keep the US consumption
going, that is for the US economy to work, other countries have to
remit $180 billion every quarter, which is $2 billion a day, to the US !
Otherwise the US economy would go for a six. So will the global economy. The
result will be no different if US consumers begin consuming less.

A Chinese economist asked a neat question. Who has invested more, US in
China , or China in US? The US has invested in China less than half of
what China has invested in US. The same is the case with India . We have
invested in US over $50 billion. But the US has invested less than $20 billion
in India .

Why the world is after US?
The secret lies in the American spending, that they hardly save. In
fact they use their credit cards to spend their future income. That the US
spends is what makes it attractive to export to the US . So US imports
more than what it exports year after year.

The Result:
The world is dependent on US consumption for its growth. By its
deepening culture of consumption, the US has habituated the world to feed on US
consumption. But as the US needs money to finance its consumption, the
world provides the money. It's like a shopkeeper providing the money to
a customer so that the customer keeps buying from the shop. If the
customer will not buy, the shop won't have business, unless the shopkeeper funds
him. The US is like the lucky customer. And the world is like the
helpless shopkeeper financier.

Who is America 's biggest shopkeeper financier? Japan of course. Yet
it is the economy of Japan which is regarded as weak. Modern economists complain that
Japanese do not spend, so they do not grow. To force the Japanese to spend, the
Japanese government exerted it self, reduced the savings rates, even
charged the savers. Even then the Japanese did not spend (habits don't
change, even with taxes, do they?). Their traditional postal savings
alone is over$1.2 trillions, about three times the Indian GDP. Thus, savings,
far from being the strength of Japan , has become its pain.

Hence, what is the lesson?
That is, a nation cannot grow unless the people spend, not save. Not
just spend, but borrow and spend. Dr. Jagdish Bhagwati, the famous
Indian-born economist in the US , told Manmohan Singh that Indians wastefully save.
Ask them to spend, on imported cars and, seriously, even on cosmetics! This
will put India on a growth curve. "Saving is sin, and spending is virtue."
Before you follow this neo economics, get some fools to save so that
you can borrow from them and spend.

This is what US has successfully done in last few decades.

No comments: