Economics Exemplified - Interesting article written by an Indian Economist

[TechMan]

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 billion.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 Americaneconomy 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 billion in US securities. Chinahas 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 makesit 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 forcethe 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!

 

[KALKI]

Their traditional postal savings alone is over $1.2 trillions, about three times the Indian GDP.

Excuse me? The Indian GDP is $ 1.7 trillion. How is 1.2 = 3 x 1.7 ????

What math is that?

 

[KALKI]

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 billion.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 Americaneconomy 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 billion in US securities. Chinahas 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 makesit 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 forcethe 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!

...as if the cycle would never break?

As if the savers will keep lending money to the spenders without being paid back a penny?

The solution lay in a middle path.

Neither too much spending nor too much saving.

Besides, the US debt has risen only in the past 10-15 years or so. The American people have been spending for decades now. Where was the money coming from earlier?

 

[luckyyy]

very old article ,i read it in 2005 i think , so that the thread starter didn't give the link..

 

[below_freezing]

What happens is that the shopkeeper finally goes out of business, and the shopper starves to death.

 

[luckyyy]

i was wrong to point out that it's a very old article i read in 2005..
infect the article is even older ..
it first appear in year 2002
http://articles.economictimes.india...34709_1_exports-japanese-economy-annual-trade

so much has changed since then..

 

[Nothing]

What happens is that the shopkeeper finally goes out of business, and the shopper starves to death.

Looks no one wants to tell answer.. Article is showing real and very true side of coin, but there is another side which had timeline from WWII to 1990.When USA did invested heavily in infrastructure , science and education. They kept improving improved life of their citizen and support to their companies to become multinationals. They made everything trade-ble, even debt. They made financial system in such a way that only they do understand and control that.
They kept their natural resources almost untapped and made rest of the world there factory. They used to spend more on their gardens than entire south Asia did spend on healthcare.
But now it is end of that cycle , it does not mean that they will collapse but they will come to level of other countries slowly .. they will come down bit other will rise more .. still they have some natural advantages like vast land mass , lots of untapped resources, safe borders , controlled population, very good standard of leaving compare to others and many more . Things are getting more complex no one knows what there at horizon of time.