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Why US Economy is strong?
Written by an Indian Economist
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 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.
Result: 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, that is $2 billion a day, to the US!Otherwise the US economy
would go for a six. (a cricket terminology for home-run) 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. 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 its 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 Dr Manmohan Singh (Economist
turned Finance Minister of India) 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.
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