Why the global economy is in a mess?
Source : Whatsapp
(An interesting post to understand the current global economic situation)
Japanese save a lot. They do not spend much. Also, Japan exports far more than it imports. So it has an annual trade surplus of over US$ 100 billion. Yet Japanese economy is considered weak, even collapsing. Americans spend a lot, save little. Also US imports more than it exports, and it has an annual trade deficit of over $ 400 billion. Yet, the American economy is considered strong and trusted to get stronger. The question is where from do Americans get money to spend? Ans : They borrow from Japan, China and even India. Virtually other countries save for the US to spend as global savings are mostly invested in US, in dollars.
India itself keeps its foreign currency assets and has over $ 110 billion in US securities. China has sunk over US$ 1.30 trillion (1,300 billion) in US securities. Japan's stakes in US securities is in US$ 1.20 trillion. As a result, The US has ‘borrowed’ over 6.18 trillion (US Dollars 6,180 billion) from the world. So, as the world saves for the US - It's 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 US$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.
Why the world is ‘investing’ in the after US? The secret lies in the American spending. They hardly save. In fact Americans 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. As a 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.
This is 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, now have negative interest rates. Even then, the Japanese do not spend (habits don't change, even with taxes, do they?). The Japanese traditional postal savings alone is over $1.7 trillion. Thus, savings, far from being the strength of Japan, has become its pain. Hence, what is the lesson? A nation cannot grow unless the people spend, not save. Not just spend, but borrow and spend.
Dr. Jagdish Bhagwati, the famous Indian-born economist in the US, told Manmohan Singh that Indians wastefully save. Ask them to spend, on imported cars and, and seriously, even on cosmetics! This will put India on a growth curve!!! This is one of the reason for MNC's coming down to India, seeing the consumer spending.
In today’s the messed up global economics mantra is : 'Saving is sin, and spending is virtue.' But before you follow this Neo Economics, get some fools to save so that you can borrow from them and spend !!! And that is precisely the reason why the world’s economy is in a economical mess.
Source : Whatsapp
(An interesting post to understand the current global economic situation)
Japanese save a lot. They do not spend much. Also, Japan exports far more than it imports. So it has an annual trade surplus of over US$ 100 billion. Yet Japanese economy is considered weak, even collapsing. Americans spend a lot, save little. Also US imports more than it exports, and it has an annual trade deficit of over $ 400 billion. Yet, the American economy is considered strong and trusted to get stronger. The question is where from do Americans get money to spend? Ans : They borrow from Japan, China and even India. Virtually other countries save for the US to spend as global savings are mostly invested in US, in dollars.
India itself keeps its foreign currency assets and has over $ 110 billion in US securities. China has sunk over US$ 1.30 trillion (1,300 billion) in US securities. Japan's stakes in US securities is in US$ 1.20 trillion. As a result, The US has ‘borrowed’ over 6.18 trillion (US Dollars 6,180 billion) from the world. So, as the world saves for the US - It's 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 US$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.
Why the world is ‘investing’ in the after US? The secret lies in the American spending. They hardly save. In fact Americans 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. As a 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.
This is 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, now have negative interest rates. Even then, the Japanese do not spend (habits don't change, even with taxes, do they?). The Japanese traditional postal savings alone is over $1.7 trillion. Thus, savings, far from being the strength of Japan, has become its pain. Hence, what is the lesson? 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, 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.
In today’s the messed up global economics mantra is : '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 !!! And that is precisely the reason why the world’s economy is in a economical mess.
