04 Jan 11 From 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 – Its The Americans who 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 !
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’s 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 itself, 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. This is one of the reason for MNC’s coming down to India , seeing the consumer spending.
‘Saving is sin, and spending is virtue.’
But before you follow this Neo Economics, get some fools to save so that you can borrow from them and spend!!!
Tags: american economy, billions, consumption, credit cards, currency assets, economist, foreign currency, global savings, india, japan china, japanese economy, money, neat question, shopkeeper, trade deficit, trade surplus, trillion, trillions
11 Feb 08 Globalization
It’s the scapegoat for politicians of both parties, but particulary Democrats. We blame it for much: lost jobs, shoddy goods.
However what keeps the economy still stable, if not exactly bouyant right now?
- Is the the incessant government tinkering, in the shape of the Federal Reserve?
- Consumer Spending?
- Foreign Trade?
I think the latter. Look at this, as a case in point.
Caterpillar, are a huge exporter. From 2004 to 2006, its exports rose 44 percent to $10.5 billion. Since the startof2006, Caterpillar says it has hired more than 11,000 new U.S. production workers. None of this guarantees that a U.S. export boom will prevent an American recession. But the mere possibility suggests that we need to be smarter about globalization -and not simply to parrot popular stereotypes.
On the job front, for example, much of today’s vitriolic anti-trade rhetoric is misleading and ill-timed.
Contrary to popular opinion, the trade balance (deficit or surplus) barely affects total U.S. employment over long periods. Domestic job creation and destruction ultimately overwhelm trade’s effects. From 1991 to 2006, the trade deficit rose from $31 billion to $759 billion. In the same period, payroll jobs increased by 28 million and the unemployment rate fell from 6.8 percent to 4.6 percent. The domestic economy still dominates. Big job losses today relate to housing: construction workers, real-estate agents, mortgage bankers.
In 2001, unemployment came from busted dotcoms and telecoms.
But trade- like any form of competition- does affect specific workers. Those vulnerable to imports naturally want to save their jobs, even if open trade is good for the country as a whole (it broadens choices, reduces prices). Although protectionism is a logical response, it’s too late. The right time would have been 30 years ago before the trade deficit exploded. Thosejobs are now gone, and most aren’t coming back.
Perversely, being anti-trade today will weaken the employment prospects of trade sensitive industries.
A case in point: the Bush administration has proposed “free-trade agreements” with Peru, Panama, Colombia and South Korea. Together, they would bolster U.S. exports, though modestly. In today’s anti-trade climate, none has yet passed Congress.
The shrinking trade deficit reflects two realities. First, the dollar has depreciated. Since 2002, it’s down 21 percent against a basket of26 currencies. That makes U.S. exports cheaper abroad and foreign imports more expensive here.
We’ve wrongly made globalization the scapegoat for many of our economic problems. But the ritualistic attacks are dangerous.
China has sold us shoddy goods. but so have domestic U.S. firms.
Globalization’s casual bashers should remember that. They think they’re playing only to a domestic audience, but the world is listening, and it may not like what it hears
Tags: awhole, case in point, consumer spending, contrary to popular opinion, domestic economy, domestic job, dotcoms, export boom, housing construction, job creation, logical response, long periods, mortgage bankers, protectionism, real estate agents, scapegoat, shoddy goods, trade balance, trade deficit, unemployment rate
281 | Unique Visitors |
